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A tracker mortgage is a special type of variable rate mortgage. As the name suggests, it tracks or follows the movement of another mortgage product instead of adjusting the rates on its own. Generally, tracker mortgages follow the base rate set by the Bank of England. A thorough knowledge of the various features of a tracker mortgage can help you purchase an advantageous product.
Lenders may offer tracker rates for a product for a preliminary period, ranging from a year to five years or lifetime tracker products that continue to chase the base rate set for the entire mortgage term. There are mortgage products with a fixed rate period for an initial duration, after which the lender sets you on a tracker rate until the end of the loan term. The introductory rates for a tracker mortgage are usually the best you could get among all loan packages.
A beneficial feature of tracker mortgages is that they allow you to overpay. If you have the funds for overpayment, you can try to acquire a product that permits overpaying any time. You may make a large payment when the interest rate is low. This can lower your principal balance by a significant amount.
Tracker mortgages offer the advantage of having low arrangement fees. You may consider a tracker mortgage with a slightly higher rate of interest over other kinds of products. The low arrangement fees may make the tracker product profitable. You could get an estimate of the expenses involved by using an online mortgage calculator. Additionally, the low fees allow easy refinancing from a tracker mortgage when the rates go up to another tracker product with a low rate. Some lenders offer a special feature that permits you change to a fixed rate product when the rate on the tracker mortgage increases, without incurring an early repayment charge.
A considerable deposit always helps a borrower as it procures a mortgage with favourable terms. The size of the deposit is even more relevant for a tracker loan. In any kind of mortgage, your reimbursements in the early years consist mostly of interest payments and those in the remaining period comprise payments of the capital. Hence, an expected rise in the tracker rate will have a lower effect, if you reduce your outstanding principal by laying down a large deposit.