Team Money Savings Advice
If you remortgage to a tracker, your payments will fluctuate, with interest rates rising and falling. Remortgage to a tracker if you don’t mind risk and want the chance of lower payments if interest rates drop during your mortgage term.
A tracker mortgage is best suited to customers that are happy to take on some risk. You won’t have a secure, regular and unchanging monthly mortgage payment. Instead, with a tracker, your interest rate could rise or fall. Your mortgage payments can change each month, which makes your mortgage much less predictable.
If you remortgage to a tracker, you must accept the risk, in the hope that your interest rates will stay low during your mortgage term.
Keep reading to learn more about tracker remortgages, and whether or not they’re right for you.
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A tracker mortgage rises and falls, following the same pattern of the Bank of England Base Rate. This doesn’t mean that you’ll be paying the Bank of England Base Rate, but something that runs parallel and means that you’re charged in line with the current economy.
When interest rates are low, you’ll enjoy a cheaper mortgage deal. When they’re higher, the cost of your mortgage goes up. When you choose a tracker mortgage, you decide to take the risk in the hope that things go in your favour.
Remember that if you choose a tracker remortgage, your payments won’t stay the same each month. You might remortgage from a different variable mortgage, or could remortgage from a fixed rate, so may or may not have previous experience of budgeting for ever-changing payments.
A tracker rate’s good if interest rates stay low and you benefit through your mortgage term. It can be disappointing if interest rates are high, as you’ll end up paying more for your property. It’s impossible to predict what interest rates will do, so you must be prepared for some risk, though you might have an idea of general trends and guess what the economy might do.
Rising and falling interest rates can be a benefit or drawback, depending on the timing of your mortgage.
Another potential drawback of a tracker rate mortgage is the challenge of budgeting successfully. You won’t pay the same for your mortgage each month, so you’ll need to make sure that you have enough money to keep making your monthly payments.
Remortgaging to a tracker rate is only wise if you’ve got plenty of spare money every month, meaning that you’re able to absorb any future interest rate changes.
Unlike some other variable mortgages, tracker mortgages follow the Bank of England Base Rate alone. Your interest rate will not be changed arbitrarily by your lender, so you’ll know that your interest rates won’t suddenly rise because your lender needs to make a bit more profit.
If you’ve previously had a fixed-rate mortgage, a tracker rate will be a new experience. You must be prepared to lose the security of consistent, unchanging monthly charges. If you’ve previously had another variable mortgage, you might be used to this already.
Remortgaging to a tracker rate may be a positive experience, helping you to save money if interest rates are lower than what you were already being charged. You might also like the fact that tracker mortgages are only influenced by the Bank of England.
A mortgage provider’s commercial interests don’t factor into the equation, so you know exactly what is responsible for interest rates rising and falling.
The cost of remortgaging can wipe out any savings that you’ll make when you find a better deal. That’s particularly true if you need to cover some early repayment charges. Before remortgaging, check that you’ll benefit from making a move to a new mortgage.
Consider current economic friends to see if a tracker’s the best choice. If interest rates are low or dropping, it could be a great time to switch.
Once you’ve remortgaged, your new tracker rate might have a mortgage term of several years. In rare cases, you might remortgage to a lifetime tracker rate. There are high charges for getting out early, so don’t get locked in until you’re sure that a tracker’s right for you.
It’s important not to remortgage to a tracker rate if you are short on spare cash since your interest rates could rise and you could end up with higher monthly payments for your mortgage.
Before committing, read the small print of your mortgage’s terms and conditions. A true tracker mortgage will only move in parallel with the Bank of England Base Rate. Some other mortgages are wrongly labelled trackers, though other things can influence their interest rate.
Check that yours is a true tracker mortgage, with just the Base Rate adjusting the price. If lenders can make changes for other reasons, it’s not a tracker mortgage you’re looking at.
Typically, the Bank of England Base Rate will change one or two times a year. At most, there will be eight changes. You’ll usually see your interest rates rising and falling just a few times a year at most, or sometimes not at all.
Here are the last five changes to the Bank of England interest rate, as of July 2020.
|Date||Time since last change||New base rate|
|19th March 2020||8 Days||0.1%|
|11th March 2020||588 Days||0.25%|
|2nd August 2018||274 Days||0.75%|
|2nd November 2017||456 Days||0.5%|
|4th August 2016||2710 Days||0.25%|
Numbers compiled by Money Savings Advice
With the base rate at the lowest it has been in years, it may not be the best time to take out a tracker mortgage as it is only likely to increase over time, rather than fall any further.
But if the interest rate stays at this low rate, you may benefit from it being fixed at this point, rather than rising due to other circumstances with other variable mortgages.
Tracker mortgages, like other variable mortgages, often have caps or collars. A cap is an upper limit, the highest your interest rate will go, whilst a collar is a lower limit that your interest rate won’t drop beyond.
Collars and caps can limit your savings, or protect you from large interest rate rises. Yet, it’s worth noting that mortgage providers can choose to set their caps at any level. Often, caps are unrealistically high, and it’s very unlikely that you’ll reach them.
If you’re remortgaging to a tracker with a cap, a tracker with a collar or both, check that you’re happy with the upper and lower interest limits.
A tracker mortgage with a cap might be more expensive than without, whilst a collar might slightly bring the price down. This is because a cap protects you, whilst a collar protects a lender’s interests. Decide if you really need a cap or collar, then see how this influences interest rates.
Here at Money Savings Advice, we have partnered with some of the UK’s leading mortgage brokers. They have already helped thousands of people get the best remortgage deal and they can do the same for you.
Choosing an independent adviser means they won’t recommend a mortgage unless they are sure it is in your best interests. Their advice is also regulated by the FCA, which gives you an additional layer of protection.
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