Mortgages Guide | Mortgage Help Product Information

TheMoveChannel.com | Variable Rate Mortgages

Introduction

Tracker mortgages are increasingly common. They are usually linked to the Bank of England base rate, in that you pay a set margin above the current base rate level. Unlike many of the other types of rate, most tracker rates will not revert to a lender's SVR at any point during the life of the loan. They will continue to track the base rate until you have either paid off your mortgage or switch provider or product.

Advantages

There is no need to rely on your lender cutting rates in line with bank base rates, which some don't necessarily always do immediately after an interest rate decision.

Your mortgage will never revert to the SVR, so you have some security in that you will never be paying a highly uncompetitive rate.

It is quite common to find tracker mortgages that have discounts and stepped discounts built into them, providing an added benefit. You may, for example, pay 0.75% below the Bank of England base rate for 1 year, after which time the rate is guaranteed to be not more than 1.75 % above the base rate for the remaining duration of the loan. As with other stepped products, there can be numerous steps in the discount before it settles at the final level and while pure tracker mortgages may be free of redemption penalties, those with discounts attached will almost certainly not be.

Disadvantages

As with other variable rates, you can be in for a rough and unpredictable ride, particularly if the MPC were to make a series of rate increases. Any volatility in interest rates makes it difficult to budget for mortgage repayments, thereby making this type of rate unsuitable for some borrowers.