Tracker Mortgage Rate
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Tracker Mortgage Rate
Tracker mortgage rates are mortgages that are directly linked to the Bank of England's base rate. These rates may be lower than the fixed mortgage rates available but they do not come with the security that a fixed rate offers.
A tracker mortgage rate is normally a fixed rate of interest above the Bank of England's base rate for a set amount of time, normally for the first two, three or five years. This means your mortgage payments will not change until the initial deal expires. Some companies also offer 'lifetime' trackers for the duration of the loan. For example, a tracker mortgage rate may be set at 2% above the base rate. This means that should the base rate be cut, you will benefit immediately as you don't have to wait for your mortgage lender to decrease their standard variable rate. Should the base rate rise however, your mortgage payments would also increase almost straight away with little notice.
Tracker mortgage rates are not to be recommended if you are on a tight budget and/or you need to have the peace of mind that your mortgage costs are not going to increase unexpectedly.
A tracker mortgage could be cheaper than the more popular fixed rate mortgages if rates do not increase over the period but the longer the initial period, the more risk.
Mortgage fees have been increasing over more and more in recent times as lenders try to claw back some of the savings homeowners can get by switching mortgage. Generally speaking the smaller the mortgage, the lower the fees should be. There would be little point in switching or remortgaging to a 2-year fixed mortgage rate, saving £25 per month (£600 over 2 years) if the set up fees were £1000 other than concern over future interest rates.
Most new mortgages come with an associated redemption penalty/tie-in. Lenders will only offer a lower tracker mortgage rate if you agree to their redemption terms. Should you leave, or pay off the mortgage you would need to pay a redemption penalty. This is usually a percentage of the outstanding mortgage and will be included in your total redemption balance.
Some lenders can also include an extended tie-in. In this case the redemption penalty is payable even after the tracker mortgage rate has ended. Your initial rate could finish but you may not be penalty free for a further year or two years for example. It is rare that these rates would be recommended under any circumstances.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
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As a mortgage broker, Impartial receives a fee from mortgage lenders, which is normally a small percentage of the loan we arrange. Where we arrange mortgages from £100,000 upwards we do not normally charge a fee. For mortgages under £100,000 we will charge minimum fee of £200, this fee is payable on application.