Tracker Remortgages

When you start shopping around for remortgages, the various different types of deal available can be more than a little confusing.

However the difference between them is generally fairly straightforward, and as long as you understand how to calculate what the impact of any remortgage may be on your finances, you can get a good idea of whether or not a deal is going to suit you.

Rates

Basically, the differences in the remortgage deals available are all about rates. The interest rates for a mortgage, or any lending for that matter, are what makes the biggest difference to your monthly payments, what you end up paying back in total, and the length of time it takes you to pay it back.

If you can get a firm grasp of what impact the rates for a chosen remortgage will be, you’ll get a fairly solid idea of whether it’s a deal you want to go for.

Tracker

A Tracker remortgage is a mortgage in which the interest rate is variable, i.e. will change over time, but is set at a fixed percentage above the Bank of England base rate.

It used to be the case that you could get a mortgage that was actually below the base rate, while still tracking it, but the rate has been lowered to such an extent in recent years that this no longer applies.

The Bank of England base rate is decided every month by the state, and what they set it at will therefore determine, indirectly, your rate if you have a Tracker remortgage.

Typically, a Tracker will be a set percentage above the rate, e.g. if the base rate is 2% and your tracker is set at the base rate plus 1%, you will pay interest at a rate of 3%.

Period

Some remortgage packages will give you a rate that tracks the base rate, but only for a set period of time. This may be a period of 2 years for example, after which your mortgage will shift to whatever the lender’s standard variable rate is at that time.

You should bear these factors in mind when comparing remortgage deals, as your calculations should include what your monthly bills will be after the initial rate has ended, which may be significantly different.

Advantages

The main advantage of having a Tracker rate at the moment is that you will find yourself paying less than the standard rate, at least for the period during which the Tracker rate applies.

Disadvantages

On the other hand, since your rate depends on the base rate, if this increases, so will your mortgage interest. This makes the Tracker deals essentially unpredictable, and it can be difficult to know what the impact on your finances will therefore be in the long term.

Watch Out For

Also, if you’re considering a Tracker remortgage, watch out for deals that apply a minimum rate that is payable, as some do. After all, if you’re rate is linked to changes in the base rate, you want to make sure you get the advantages of this and not just the disadvantages.