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In the current economic climate, tracker mortgages may become an intriguing mortgage option that could benefit borrowers over the next few years. In this article, we look at the pros and cons of a tracker rate mortgage.
The base rate is expected to peak in the near future, so it’s crucial to consider mortgage options carefully. A tracker rate mortgage is worth exploring, as it offers advantages and disadvantages that could significantly impact your monthly mortgage payments.
The pros of tracker rate mortgages
- A tracker rate mortgage will typically have an interest rate with a small margin above the base rate.
- Tracker rate mortgages fluctuate with the base rate, which means that when the bank base rate reduces, your tracker rate mortgage will reduce directly in line and therefore mean you pay less for your mortgage payment.
- Flexibility, tracker rate mortgages will often come with more flexible terms than fixed-rate mortgages. This can include the ability to make overpayments or in some cases the whole mortgage without penalty.
- No early repayment charges (ERC’s). Many Tracker rate mortgage do not have early repayment charges. This means if you come into extra funds, this means that you can clear off large payments from your mortgage or even the whole loan without penalties.
The cons of tracker rate mortgages
- Interest rate risk: tracker rate mortgages are linked the base rate, which means that monthly payments can increase if interest rates increase. If the base rate goes up significantly, your mortgage payments could become less affordable, causing them potential financial strain.
- Budget uncertainty: The fluctuating nature of tracker rate mortgages can make it challenging to budget. If your income is fixed, you may find it more difficult to plan mortgage payments that vary from month to month.
- For some borrowers the uncertainty of a tracker rate mortgage can be stressful. Knowing that mortgage payments can vary, and rise can cause anxiety. In which case a fixed rate mortgage may be more appropriate.
- Whilst tracker rate mortgages can save money in the short term if interest rates are reducing. This needs to be balanced off against the risk of rates potentially increasing.
To conclude, a tracker rate mortgage can be a suitable option for borrowers who are comfortable with a level of interest rate risk and who value the potential for lower mortgage payments. However, carefully considering your financial situation and risk tolerance is essential.
At MMPE, we understand that choosing the right mortgage is a significant decision. We are here to provide you with friendly and approachable advice tailored to your unique circumstances. We can help you assess whether a tracker rate mortgage aligns with your financial goals and guide you to make an informed decision.
If you have any questions or would like to discuss your mortgage options further, please don’t hesitate to reach out. We are here to assist you every step of the way.
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