Tracker Mortgages
A tracker mortgage essentially tracks the base rate of the Bank of England, meaning your mortgage remains in harmony with the market and interest rates. The end result on the monthly mortgage interest payments you make is that they get higher when the base rate increases and they get lower when the base rate decreases.
A tracker mortgage actually works in a similar fashion to a normal variable rate mortgage, given that it also follows the rate dictated by the Bank of England. Whilst the typical variable rate mortgage changes annually or monthly a tracker mortgage almost always guarantees to abide by changes in the base rate of the bank within two-weeks of it taking place. Thus the borrower derives benefits from both rises and falls in the interest rates far sooner.
A tracker mortgage, as we have previously discussed, is fixed mathematically to the rate of the Bank of England and is bound contractually to change within a specific time of the bank altering its rate. Therefore, the tracker mortgage might track the base rate both up and down whilst it changes. The lender of the mortgage will make profit by simply charging the buyer an amount that exceeds the base rate.
This type of mortgage is perfect for people who are glad for their outgoings to be adjusted, but desire their mortgage to properly reflect the ever-changing expenses of borrowing. These mortgages are often well matched to borrowers that are seeking cheap initial disbursements and can take the gamble that their payments might increase sometime in the future.
The main difference between tracker and variable rate mortgages is that tracker mortgages will be assured to fluctuate up and down whenever the interest rates are changed. Variable rate mortgages will not.
There are 3 basic kinds of tracker mortgages: those that the lender guarantees that the disparity between the mortgage rate and the base rate will never go past a certain level; those that operate at an arranged differential to the banks base rate for a specified amount of time before reverting back to the standard variable rate; and finally ones that follow the base rate of the bank for the entire life of the loan.
And when people are remortgaging, it is tantalising to be captivated by the most unrivaled mortgage rate you can find on the market, which more often than not tends to be a tracker or discount mortgage.