Tracker Mortgage
A tracker mortgage is a type of variable rate mortgage where the interest rate automatically adjusts and tracks a nominated benchmark, typically the Bank of England's base rate, plus a set margin. This means monthly payments can vary over the term of the loan.
What is a Tracker Mortgage?
In the property market, a tracker mortgage offers a more dynamic financing option for homebuyers. Unlike fixed rate mortgages that lock in an interest rate for a set period, tracker mortgages adjust based on changes to an external benchmark. This approach can result in lower interest rates and monthly payments when the benchmark rate decreases, offering potential savings to the borrower. However, it also introduces variability, as rates and payments can increase when the benchmark rises.
The transparency and potential savings of tracker mortgages make them appealing, particularly in a declining or stable interest rate environment. Borrowers benefit from any reductions in the benchmark rate but must also be financially prepared for rate increases. Typically, these mortgages come with a "cap" or "collar," setting a maximum or minimum interest rate to offer some protection against extreme rate fluctuations.
Frequently Asked Questions
Tracker Mortgage is a term that you may have heard before, but you might not be sure what it means. Here are some common questions and answers to help you understand what it means.
