In a Tracker mortgage deal, your lender will use the Bank of England base rate to determine a standard variable rate and it is this rate that you will have to pay on top of your monthly mortgage repayments.
The lender’s standard variable rate of interest is subject to change, in line with the Bank of England base rate and this means that the interest you pay may increase or decrease. It is advisable to compare as many lenders and mortgage deals as possible in order to find the best Tracker mortgage deal for you.
Pros and Cons of Tracker Deals
Firstly, the interest rate you pay may begin at a low level if the base rate goes through a sustained period of falling, and you may end up saving yourself money in the long term.
Of course, if the base rate and stayed high for a substantial period of time were to rise there is the possibility that you could end up paying a lot more than you would for a fixed rate or standard variable mortgage deal.
Some lenders’ tracker mortgage deals may require an early redemption fee if you should manage to pay off the mortgage relatively near the beginning of the policy’s lifetime.
So perhaps tracker mortgage deals are best suited to those whose budgets are not particularly tight, and so can afford variations in the amount they are repaying.
Once you have chosen the right Tracker mortgage lender and deal for you, you should decide your preferred method of repayment. The options are:
Repayment – this method consists of straight forward monthly payments that include the interest you owe on top a pre-agreed monthly sum of mortgage repayments.
Interest Only – this method consists solely of monthly payments of the interest you owe and you have to make separate payments into an ISA to repay your mortgage loan at the end of its term.