Tracker Mortgages - Frequently Asked Mortgage Questions

Hi everyone it's the boys from Crescent Mortgages here again coming to you with our FAMQ's - frequently asked mortgage questions and today we're going to be giving you a little bit of information on tracker interest rates.

Kye, what is a tracker interest rate? I'm glad you asked. A tracker interest rate it's a type of variable rate and it is a rate that will fluctuate with the bank of England base rate, simply. Okay so if the bank of England base rate goes up a tracker rate will go up with it is that? Yes, it will track it, it will go up with it yeah. And if the bank of England base rate goes down? It goes down and what if the bank of England base rate stays the same? Then nothing happens. Great so although it is a variable rate it may just stay the same moving forwards until the base rate changes if the bank of England base rate stays the same for 18 months your rate will stay the same for 18 months even though it is technically a type of variable rate. Usually a tracker is the bank of England base rate plus point something percent or one point something percent so the bank of England base rate at the time of filming is 0.1%. 0.1%, so a lender may offer you a tracker which is the bank of England-base rate plus 1.5% which means that your rate currently will be 1.6% so the base rate plus the additional 1.5% and then your rate would move with it. Yeah, good, so why why do people pick a tracker? You go for that one. Yeah a few different reasons. You had the easy ones didn't you? Yeah I got the easy one. So there's a few different reasons, one common reason is if someone believes that interest rates are going to reduce then you may go onto a tracker rate believing that if the bank of England base rate goes down your rate would go down with it and you would benefit from the new lower rates that's probably probably one of the most common reasons. That's more of an economical decision. The other reason in terms of someone's actual real life plans are because some tracker schemes give you more flexibility than a fix because some of them do not tie you in for an initial period so generally with a fixed rate you'll be tied in for a usually a minimum of two years there are some tracker rates that do not tie you in at all so if you're thinking of moving house in six months you might put yourself on a tracker rate and then if you move in six months you can just leave the mortgage behind without paying any early repayment charges. Most of them do, most of them don't have repayment charges, as a rule of thumb, I'd probably say more do. I'd probably say 50/50. Yeah either way if you're going for a tracker for the flexibility make sure you check because some lenders will charge you an early repayment charge don't make the assumption that it won't have an early repayment charge definitely make those checks before you make any final decisions. The other one I suppose it comes up would be when somebody wants to overpay significantly so if you're going to come into some money in a year's time you get a big annual bonus, you want to pay some big lump sums off the mortgage, that's the other one that probably pops up less common than the other two. Kind of ties in with the early repayment charges doesn't it ultimately it just gives you more flexibility to clear your mortgage down if you think you're going to have the funds to do that within the next two years. Yeah, I think that probably covers it don't you think Kye? It's not a lot more than that. I suppose the only real negative against it, other than your ability to budget, which isn't the only one, is it can go up to any level so if you're banking the base rate went crazy and it went up 5% then your interest rate would do the same and that could be quite a problem but, it's not that likely, and again it's the conversation you'd have ultimately with a broker and obviously it depends on the current market you know if interest rates look like they may be increasing and you know at the time of filming the banking the base rate is very low so it looks like it may be increasing in the near future you definitely need to consider that if you do want a tracker because the chances are when the base rate goes up your monthly mortgage payment will increase as well. Is this the bit where we encourage questions? Any questions on anything we've covered please leave them in the comments we will do our best to come back to you. I'd like to know if anyone's had one of those old trackers that they've been on for like 25 years, the 0.1% above base rate or I think someone on a negative. Legacy trackers, yeah. If you've been on one of those - it's quite niche though isn't it?!

Should we do something broader where people are more likely to comments?Has anyone nailed it on a tracker? Are you on a tracker? Did you find it worked for you? Gave you the flexibility you needed? Or were you stung? Did you take one out before rates went up years ago and unfortunately you had to increase your mortgage payments? Any feedback in the comments below and please subscribe to our channel. More videos coming soon, thank you!
I enjoyed that one Kye