What is a tracker rate mortgage?
A
tracker rate mortgage is a
mortgage that tracks another rate - usually the
Bank of England's
base rate but some
mortgage lenders track the US dollar interest
rates for example.
The tracker rate is set at a percentage below or above the rate it is tracking. For example the Bank of England sets its base rate to 4.25% the base rate tracker mortgage offered by the bank or
building society is 1% above the tracker rate, therefore the
base rate mortgage offered would be 5.25%.
So why are so many consumers choosing tracker rate mortgages?? Well with so many
interest rate changes in 2004 the consumers no longer want to be tied to a fixed rate mortgage. The advantages of the tracker rate mortgage is that all falls in the
interest rate are automatically passed on to the
borrower - the downside of course is that the increases are also passed on.
The tracker rate mortgage doesn't appeal to everyone - It's more likely to be attractive to those who expect interest rates to remain broadly stable or even fall in the deal period. They suit borrowers who can adapt their payments in reaction to interest rate changes
