Time to switch to a tracker mortgage
By: Graham Bradlington
Fixed-rate home loans may be in mode, but with a reduction in rates imminent it would be advisable to consider the tracker option instead. Fixed-rate mortgages have been very popular in recently but with all the talk about interest rate cuts, a tracker mortgage could be the way to go.
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.
Fixed rate mortgages appeal to those who want to know exactly how much their repayments will be each and every month and are an attractive option in circumstances where there is an upward trend in the interest rates. However, most experts now agree that the interest trend will be downward therefore the tracker mortgage will be the most appealing as many will worry about fixing an interest rate at the peak of it's cycle.
A tracker mortgage is named in this way since it tracks the movements of the base interest rate from the Bank Of England. In effect it calculates the mortgage repayment based on the base rate of the day and adds a fixed percentage to this rate. The mortgage repayments fluctuate in line with the movement of interest rates. This could be deemed an ideal mortgage when the trend of interest is downward. Since, when the Bank Of England rate falls the mortgage payment also falls. 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. The advantage of choosing this product during a period of interest rate cuts is that your repayments will decrease during this period and after the expiry date you can review your options again.
Graham Bradlington is the marketing manager for Quickly Finance Limited, a company which specialise in Fast track Secured Loan & Remortgage applications for homeowners. Quickly Finance is 100% independent & can search the whole market for the best deals... quickly! For more info: http://www.quicklyfinance.com
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