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Tracker Mortgages

A tracker mortgage follows the Bank of England’s base rate, and is as opposed to a fixed rate mortgage in which the repayment rate remains the same throughout.

Tracker mortgages are often spoken of as though they were synonymous with variable rate mortgages, however there is one essential difference. The variable rate mortgage will follow the standard variable rate of the bank which is lending the money, whereas a tracker mortgage directly follows the Bank of England’s base rate. This provides more clarity and potentially more protection. A recent article in the Guardian newspaper argued that those who opt to “gamble” on tracker mortgages rather than fixed-rate could well end up winning through as a result. There is a widening gap between tracker and fixed rates which means that borrowers willing to take a chance on interest rates not rising swiftly will under current conditions be able to save more. Repayment rates on two year tracker mortgages in the United Kingdom currently average 3.4%, whereas fixed rates sit at nearly 4.6%. Shrewd borrowers will combine these low rates with other benefits, such as lifetime or flexible trackers, which may enable them to sidestep fees or early repayment charges.

In the short to medium term Bank of England rates are not expected to climb significantly. In a double dip recession many economists believe the prospect of an increase is slipping ever further into the hazy distance. Indeed the City sees no prospect of an increase above 0.5% until the end of 2013 at the very earliest. As a result of this tracker mortgages, although subject to an element of risk, are likely to prove less costly to the borrower than any fixed rate agreement certainly for the foreseeable future.

The interest rate applied to tracker mortgages will always exceed the Bank of England base rate, typically by around 2%. If the base rate increases then the mortgage rate will increase accordingly, although in some instances they can be capped at a certain level. It is only when the base rate is high that their appeal by comparison with a fixed rate agreement diminishes.

One of the most attractive aspects of tracker mortgages is that, charges permitting, they allow the option of increasing payments when the rates are low, thereby leaving less to be paid when or if they eventually increase. In effect then the borrower is able to manipulate the payment schedule and frontload repayments to his or her own benefit.

Compare some of the best tracker rate mortgage deals online using the above websites, and find your best tracker mortgage deal today.

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