Why not Change to a Tracker Mortgage?

by : Graham Bradlington

Over recent months fixed-rate mortgages have been flying off the shelves during the peiod of interest rate rises. However, it appears that there will be a reduction of interest rates in the near future so is a fixed rate mortgage still a wise choice? In a climate of interest cuts, a tracker mortgage would be the sensible option instea

Even though interest rates have been kept on hold over recent months, indications point to a gradual reduction over the coming months and year ahead. A tracker mortgage would be a sensible option as it follows the movements of the Bank Of England base rate.

According to the Council of Mortgage Lenders, fixed rate mortgages reached a peak in August 2007 and they accounted for almost 80% of all mortgages taken out in the UK.

For those who want the reassurance of knowing exactly how much their mortgage repayment will be each and every month, a fixed rate mortgage is the preferred option. This even more this case in market conditions where there is an upward trend in interest rate rises. No-one wants to fix an interest rate at the peak of the interest rate cycle, so a tracker mortgage is becoming an increasingly attractive option.

A tracker mortgage is named in this way since it tracks the movements of the base interest rate from the Bank Of England. The mortgage repayment is caluculated upon the current base rate and a set fixed percentage is added to this rate. So as interest rates fluctuate the mortgage payments move accordingly. This could be deemed an ideal mortgage when the trend of interest is downward. The result is that when the Bank Of England cuts interest rates, your mortgage repayment amount reduces accordingly. The fixed amount charged in addition to the base rate can vary from lender to lender, so it is wise to shop around for the best deal.

With tracker mortgages you can choose to have a fixed period, such as two or three years, where the mortgage interest rate will track the Bank of England base rate. Once this period had expired the mortgage will revert back to the standard variable interest rate charged by the lender.

With this kind of mortgage there are the options to revert to a tracker for a fixed period which is usually 2 or 3 years. The mortgage repayment will be calculated upon the Bank Of England's base rate during this period. After the agreed tracker rate period expires then the mortgage will revert to the standard variable rate. During a period of interest rate reductions, your mortgage repayments will decrease accordingly. After the product expiry date you will have the option to review and make a further decision based upon market conditions at that time.