Why Tracker Remortgages Have Better Interest Rates

When searching for a remortgage it can often be confusing as to what types of remortgages are available as well as why one type affords better rates than others.  In taking a few moments to better understand the basic types of remortgages available it will assist you in better understanding the rates that would be offered.  This will in turn help you in determining which remortgage deal is best for you.

The most common types of remortgages are fixed rate remortgages and tracker rate remortgages.  Both types of remortgages are good and afford their own unique benefits to the homeowner.  It will be the individual needs of a homeowner that will determine which is best for that particular situation.

A fixed rate remortgage is a remortgage that gives you a loan at a set interest rate that will stay fixed for a set period of time.  This rate will not change, even if the Bank of England’s Monetary Policy Committee should raise or lower the standard base interest rate.  There can be some stipulations put upon the remortgage that would cause the rate to change such as a missed payment, or other stipulation.  Usually the rate remains fixed for a particular period.  Once this period ends the loan will come off of the fixed rate and will move to the lender’s variable rate.

A fixed rate remortgage would be good for a homeowner that wanted to know exactly what their mortgage payment would be without fluctuations.  Because there is more of a risk of the bank losing money from loaning the money to a homeowner should the rates rise, this type of loan does not have as good as a rate as one would find with a riskier loan which would be a tracker loan.  Also, should the rate be lowered by the Bank, the homeowner will not benefit by that decrease since their rate is fixed.

A tracker remortgage involves more risk for the homeowner due to the interest rate on the remortgage fluctuating according to the Bank’s standard base interest rate.  It “tracks” the rate by a set amount.  If the Bank should raise or lower the interest rate then the homeowner’s remortgage rate would raise or lower.  This is considered a riskier remortgage when compared to a fixed rate because a homeowner could end up paying higher mortgage payments should the Bank’s rate rise.  Because the lender will not lose out on money should the rate rise, this type of remortgage traditionally comes with much better rates than a fixed rate remortgage.  Once the period of time for the tracker rate has passed, just like with the fixed rate, the remortgage will convert to the lender’s variable rate.

A tracker is a good choice for a homeowner that can handle a range of mortgage payments.  This is also a good idea for a homeowner that is good at saving.  The difference in the rate amount for a tracker and a fixed rate could give savings that could be invested.  The savings could be used if the rate goes up to pay mortgage payments, but meanwhile could be put aside, saved and gain interest and if the rate never raises it afforded considerable savings for the homeowner.  Some tracker remortgages offer the opportunity to convert to a fixed rate without penalty and this too could be given consideration.

By understanding more about how lenders determine rate fluctuations between types of remortgages will help a homeowner better understand how to choose the best remortgage deal for their needs.