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By Peter Kenny
Tracker mortgages are one of the most common types of mortgage
around, but they can be confusing if you are new to the
mortgage world. Tracker mortgages have a number of benefits as
well as dangers, and it pays to know about these before
shopping around. If you are looking for a mortgage then here
is
some advice about tracker mortgages and if they are right for
you:
What is a tracker mortgage?
A tracker mortgage is fairly similar to a normal variable rate
mortgage, although the variations in interest are much
quicker.
A tracker mortgage follows the base rate of interest imposed
by
the Bank of England; any changes in the rate will be reflected
in your mortgage payments. Whilst variable rate mortgages
usually take months to change, tracker mortgages will change
rates within 14 days of a new rate being announced. This means
that you can more quickly benefit from any drops in the rate.
The change is compulsory, and part of the contract of a
tracker
mortgage will state that the interest rate must change in
accordance with the Bank of England within a certain
timeframe.
What are the advantages?
The obvious advantage of a tracker mortgage is that if the
interest rate drops, then your payments will drop within a few
weeks of the change. This means your mortgage stays
competitive
and is always in line with the current market level. This
mortgage is great for people who want their mortgage to
reflect
the changing costs of borrowing, but also don’t mind if their
repayments fluctuate.
What are the problems?
The problem with a tracker mortgage is that if the interest
rate rises, you will be left with higher payments almost
straight away. If you are on a budget then higher payments
could leave you in financial difficulty and unable to make
your
repayments.
Types of tracker
There are a number of types of tracker mortgage. The first
type
is the tracker mortgage that simply follows the base rate
changes for the entire mortgage term. The second is one that
runs with the base rate for a while before return to a
standard
variable rate, and the third is one that has a limit on how
far
the tracker rate can change. Finding the best type for you
requires shopping around and looking at your circumstances in
detail.
Who should get a tracker mortgage?
A tracker mortgage is good for people who can cope with
fluctuations in payment, and so can afford to take the risk
that the payments will rise in exchange for the chance that
they will get lower. You should look at your financial
situation rather than trying to predict the future interest
rate. If you can afford higher payments at some point then you
could benefit from low interest rates, and so pay less for
your
mortgage.
About The Author: Peter Kenny is a writer for creditcards-gb.
For additional articles and an extensive resource for
everything about credit cards, please visit us at
www.creditcards-gb.co.uk and
www.thriftyscot.co.uk/Mortgages/
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