More than 30 lenders withdrew their various offers of tracker mortgages from the market citing reasons of re-pricing. However, the surprise cut of base rate by 1.5% has forced many lenders to increase their margins by two-fold on tracker mortgages and starting this week, many banks and mortgage giants have reintroduced tracker deals for existing home owners. For example, Halifax, UK’s largest lender has reintroduced its two-year tracker deals for individuals who have a deposit of 25% at a rate of 5.14%, or 2.14% above base. Homeowners who have a 25% deposit with Mortgage major Lloyds TSB can hope to pay 2.09% above base. Last week, Abbey’s two year tracker was 1.29% compared to the current 1.99% above the base rate.
A tracker mortgage is a very commonly used product in the UK and is nothing but a loan secured against a real estate property and the interest that is charged promises to have a definite relationship with the base rate of Bank of England. Tracker mortgage rates are usually cheaper than fixed or flexible rate mortgage. However, the unique part of tracker mortgage rate is that even though the cost of a tracker mortgage dips with falling interest rates, it does not guard the owner against rising interest rates.
When it comes to remortgaging, individuals get mostly attracted to cheap mortgage rates which in most of the times happens to be a discount or tracker mortgage. However, there is a subtle but important difference between tracker mortgage rate and discount mortgage. While discount rates are connected with the standard variable rate of the mortgage provider, a tracker mortgage is linked with the base rate of Bank of England. A tracker mortgage mirrors the current financial situation and its interest rates are cheaper than fixed mortgage rates.
If you are looking for small payments at the early stages and willing to take the risk of higher payments in the future, then tracker mortgage are best suited for a person like you. However, like all loans, you must read the fine print before opting for tracker mortgage. If the interest rate is set well below the base point for 2 years, you can have some lenders stating that they will assess the situation once the base rate falls too low or some even mentions that you have to a pay a minimum rate if the interest falls much below expectation. Such conditions defeat the entire purpose of opting for a tracker mortgage.
You have to be intelligent to know when to go in for a tracker, fixed or capped rate option. At a time when chances of base rate falling are very high in 2009, it would be only but foolish not to opt for a tracker rate mortgage. As a borrower, you can also look for trackers that provide a drop lock choice which enables you to move to a fixed rate any time you wish. So now is the right time to opt for tracker mortgage rate with interest rates falling sharply.
By Nancy Dodds of Financemate.co.uk