The majority of homebuyers and those remortgaging have chosen fixed rate mortgages over the last few years, as they offer valuable peace of mind that your monthly payments won’t change even if interest rates increase.
However, fixed rates have jumped in recent months, with some now higher than lenders’ standard variable rates, which are usually the most expensive mortgage rates to be on. Many tracker deals are offering much lower rates, and are therefore making a comeback with homebuyers and those remortgaging who are looking to keep their monthly payments to a minimum.
Pros and cons of tracker mortgagesTracker mortgages, as their name suggests, usually track the Bank of England base rate, plus a set percentage. Like other types of mortgage deal, you can usually sign up to a tracker deal for two, three, five or 10 years.
The main benefit of tracker mortgages at the moment is that their rates are currently quite a bit lower than fixed mortgage rates. Given the current cost of living crisis, many homeowners need to keep costs as low as possible, so locking into a higher fixed rate may not look as affordable.
Some tracker mortgage deals also come without Early Repayment Charges, which means if later down the line you decide you want to switch to a fixed rate mortgage, you may be able to do so without penalty.
The main downside of a tracker mortgage is that the rate is variable, so if the base rate continues to rise, your monthly payments will increase. That means this type of deal will only really be suitable for those who have room in their budget to cope with changes to their monthly payments.
Of course, if rates go down in future, then those on tracker deals will be the first to benefit, so a tracker may be an option for homeowners coming off a high variable rate who think that rates are likely to fall soon.
If you’re worried about rates going up, however, you might decide it is worth paying more for a higher fixed rate deal now, as it could protect you from steeper costs later on.
With so many different mortgage options to choose from, and rates changing all the time, it’s worth seeking advice from our experts on the best deals to suit your individual circumstances. They can crunch all the numbers on your behalf, and help you find the right option for your needs.