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  • Tracker Mortgages

Tracker Mortgages

With a tracker mortgage, the rate of interest the borrower pays is linked to a specified index, normally the Bank of England’s (BoE) base rate of interest. So whenever the base rate changes, so does the tracker’s interest rate and the borrower’s monthly repayment. For those reasons, tracker mortgages are known as ‘variable rate’ mortgages.

When interest rates are low, the borrower’s monthly repayment might be less than it would be on a different type of mortgage, such as a fixed rate or standard variable rate mortgage. But when interest rates are high, the reverse is true. And as the rate is likely to vary, the borrower can never be sure exactly when or whether their monthly repayment may change.

Although the rate of interest on a tracker mortgage is linked to, for example, the BoE base rate, the actual interest rate charged on the mortgage will be determined by the lender and will usually be higher than base rate (the ‘margin’) and usually expressed as ‘Base rate’ + ‘margin’. So if base rate is 2%, and the margin is 2%, the interest rate on a tracker mortgage will be 4%. If the base rate increases to 2.5%, the rate of interest will be 4.5% (2.5% base rates plus 2% ‘Margin’).

It is important to note that most ‘tracker’ rate mortgages have a minimum rate that will apply to the loan. For example, if loan tracking at Base rate + 2% and had a minimum rate of 3%, any reductions in the base rate below 1% would not result in a change in the rate the borrower was charged.

Although some tracker mortgages run for the life of the loan, most last for less than that — between one year and 5 years is not untypical.

Once the tracker arrangement finishes, most lenders will switch the mortgage to a standard variable rate of interest.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

Tracker Mortgages

With a tracker mortgage, the rate of interest the borrower pays is linked to a specified index, normally the Bank of England’s (BoE) base rate of interest. So whenever the base rate changes, so does the tracker’s interest rate and the borrower’s monthly repayment. For those reasons, tracker mortgages are known as ‘variable rate’ mortgages.

When interest rates are low, the borrower’s monthly repayment might be less than it would be on a different type of mortgage, such as a fixed rate or standard variable rate mortgage. But when interest rates are high, the reverse is true. And as the rate is likely to vary, the borrower can never be sure exactly when or whether their monthly repayment may change.

Although the rate of interest on a tracker mortgage is linked to, for example, the BoE base rate, the actual interest rate charged on the mortgage will be determined by the lender and will usually be higher than base rate (the ‘margin’) and usually expressed as ‘Base rate’ + ‘margin’. So if base rate is 2%, and the margin is 2%, the interest rate on a tracker mortgage will be 4%. If the base rate increases to 2.5%, the rate of interest will be 4.5% (2.5% base rates plus 2% ‘Margin’).

It is important to note that most ‘tracker’ rate mortgages have a minimum rate that will apply to the loan. For example, if loan tracking at Base rate + 2% and had a minimum rate of 3%, any reductions in the base rate below 1% would not result in a change in the rate the borrower was charged.

Although some tracker mortgages run for the life of the loan, most last for less than that — between one year and 5 years is not untypical.

Once the tracker arrangement finishes, most lenders will switch the mortgage to a standard variable rate of interest.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

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Company address: Family First Mortgages Ltd, 132 Lewisham High Street , Lewisham, London, SE13 6BE T: 07951793579 E: mariankaikai@familyfirstmortgages.uk

Family First Mortgages Ltd is an appointed representative Quilter Mortgage Planning Limited, which is authorised and regulated by the Financial Conduct Authority. Quilter Mortgage Planning Limited are entered on the FCA register (http://www.fca.org.uk/register) under reference 440718.

Family First Mortgages Ltd is registered as a company in England & Wales No: 11432105. Registered Address: 1st FloorRomer House, 132 Lewisham High Street, London, United Kingdom, SE13 6EE

The guidance and/or advice contained within this website is subject to the UK regulatory regime, and is therefore targeted at consumers based in the UK.

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