How to Decide between a Tracker and Variable or Fixed Rate Mortgage: Your Questions Answered
If you’re planning to take on a mortgage soon, then congratulations are in order – you’re in for an adventure. However, mortgages can be quite intimidating, and there are many kinds of mortgages out there. The first thing you will have to decide is whether to get a variable (tracker) rate or fixed rate mortgage.
Your choice will largely depend on the economic situation and how you see it improving or declining, as well as your own personal financial situation and your future prospects. But what exactly do these terms mean? What should you be looking out for? Here’s how to decide between a tracker and variable or fixed rate mortgage: you questions answered.
What’s a mortgage, anyway?
A mortgage is a loan from a bank or other mortgage lender. In essence, you borrow a lot of money (in order to buy property) so that this money can be used to buy the property. The property actually doesn’t belong to you, however, until you have paid of the total amount of money that you owe. The mortgage lender keeps the title of the property as collateral.
A mortgage is usually paid monthly, and is paid for over a period of 25 or 30 years (although these amounts and terms vary according to the contract). The borrower needs to pay back the capital and the interest on the capital. Different terms and different rates are used, depending on the mortgage lender.
Standard variable rates
This is an interest rate calculated on the standard variable rate – that indicated by the central bank, plus adjustment depending on your mortgage lender. It’s a common rate to use. There are many mortgage deals on the market, however, that are more favourable to the borrower.
Tracker mortgages are similar to the standard variable rate mortgage in that the interest rates largely depend on the base rate, but they are more favourable (usually), and track the change in rate cuts.
Fixed rate mortgages
It’s a fixed rate, decided by the mortgage lender, and completely independent of the changes in base rates.
They can offer serious advantages – but they can also be dangerous and could be subject to rises.
Deciding is not always easy – your decision should be based on your prospects for the future as well as your prediction of what the future economy (and more especially interest rates) will hold. You’ll also have to be careful on what kind of contract you sign; some contracts have a clause with a “collar” in it, which stops you from switching deals. If it’s all a little too confusing, you’re not alone with that feeling. Seek professional advice – speak to a mortgage advisor Colchester from such firms as Flagstone, for instance – if it gets a bit too much. It’s your future that’s at stake, after all.