UK Base Rate Tracker Mortgages Explained
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UK Base rate tracker mortgages are the latest type of mortgage available and are proving to be a big hit amongst UK consumers. Tracker mortgages offer new choices to consumers and insulate borrowers from shock increases. So what is a UK base rate tracker mortgage? In very simple terms, it is a mortgage that tracks the Bank of England base rate at an agreed rate.
Definition
Base rate is defined as the lowest rate at which a UK bank will charge interest.
How It Works
Base rate is set by the Bank of England and is reviewed by the Monetary Policy Committee of the Bank of England every month.
The mortgage lender will charge an interest rate that is 1 or 2% higher than the base rate.
Let us say that the base rate is at 5% and your mortgage lender is charging you 1.5% above the base rate, you will be paying 6.5% interest on your mortgage.
The interest that you pay on your tracker mortgage is dependent on what the Bank of England’s Monetary Policy Committee decides, while the interest that you pay on your standard rate mortgage can go up or down, even if the base rate remains stable. In other words, UK base rate tracker mortgages are much more stable, and they also have lower interest rates in comparison to fixed rate mortgages.
Tracker Themes
A UK Lifetime tracker basically tracks the base rate for the whole life of the loan.
You can choose a tracker theme that runs for a set period at a pre-determined margin, which can be above or below the base rate, before moving to a lender’s standard variable rate.
The third type is a tracker where the difference between the base rate and the loan rate will be set at an agreed level.
There are few things you should consider when taking out a UK mortgage:
Moneylenders set a minimum and maximum amount of money that they will lend you. Some lenders can lend you 90% of your property value.
If you borrow more than a certain amount, the lender will charge you a fee that will be used to buy insurance.
Shop around for a mortgage to get the best rate.
How much you can borrow depends on how much you earn.
You might have to pay certain fees or interest penalty if you repay the loan before the term ends. This penalty decreases with time.
Whether you are going for a base rate tracker mortgage or any other types of mortgage, it always makes sense to shop around to get the best deal. Click here to compare UK tracker mortgage brokers
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