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Tracker Rate Mortgages
Mortgages are available in a number of different interest rate options, one of which is the tracker rate mortgage.
Tracker rate mortgages have been available for many years. As the name suggests, the monthly repayment goes up and down in line with the Bank of England's base rate. When the loan is set up customers are advised of the appropriate 'margin' to be applied to the loan.
With this scheme you are guaranteed that a change in base rate will be reflected in the mortgage rate payable.
This means that you cannot predict the monthly cost of the mortgage from one year to the next. This can cause budgeting problems in a period of increasing interest rates. On the other hand, when interest rates fall, there is the guarantee that your mortgage rate will fall by the same amount as the Bank of England base rate.
With interest rates used as a regulator for the economy, mortgage interest rates have been known to change frequently.
Tracker rate mortgage Quote
As an addition to a tracker mortgage it is possible to get a discounted tracker rate. This is a variation of a variable rate where the lender quotes a discount off of their base rate for a set period of time, after which the rate will revert to the Bank of England base rate plus a percentage decided at outset. As an example a tracker discount of 4.99% for 2 years, where the lenders base rate is 5.5% could be expressed as follows 0.51% discount for 2 year then T+1.75
There are a few variations in the type of tracker rate mortgages available. For instance, there is the lifetime tracker, which will track the base rate for the entire life of the mortgage. Then there is the tracker running for a set period at an agreed margin above or below the base rate which then moves to the lender's standard variable rate. Then there are trackers in which the lender makes a commitment that the difference between the base rate and the mortgage pay rate will not exceed a certain level.