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.
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