Base Rate Tracker Mortgages

Base rate tracker mortgages are mortgages with a variable interest rate. The interest rate follows, or tracks, the Bank of England’s lowest lending rate. This type of loan can be structured in many different ways.

Types of Base Rate Tracker Mortgages

Some base rate tracker mortgages are structured so that the mortgage deal lasts for a few introductory years. After that time the loan changes to follow the lender’s standard variable rate. Some base rate tracker mortgages actually last for the entire term of the mortgage.

Regardless of the structure, this type of loan does change its interest rate with time. If the Bank of England’s interest rate increases, so will your interest rate. On the other hand, if it decreases, so will yours.

Base Rate Tracker Mortgages Versus Variable Rate Mortgages

In a standard variable rate mortgage, the interest rate is typically 2% over the Bank of England’s base rate. With a base rate tracker mortgage the interest rate is the base rate plus .25% to .75%. This, obviously, makes this type of loan a discounted offer.

Who Can Use Base Rate Tracker Mortgages

Not everyone can benefit from a base rate tracker mortgage. If you feel that the base rate is going to continue to drop over the long term, you might want to consider this mortgage structure. However, this is not a good idea if you are on a tight budget. Remember, you may have a higher monthly payment if interest rates increase.

If you decide that a base rate tracker mortgage is the best choice for your home buying needs, you need to watch the markets to pick the right time to sign up for your mortgage. This type of mortgage works best when rates are falling. However, it can also be an affordable option when interest rates are on the rise.

See, when interest rates begin to rise, borrowers run to their lenders to change their mortgages to fixed mortgages. Lenders can see this coming, and as a result they will often increase their fixed rates before the rush. In this situation, a base rate tracker mortgage may remain the cheaper option for several years. Also, with a base rate tracker mortgage, your rates could always decrease at some point in the future.

The bottom line is that base rate tracker mortgages present a risk to the borrower. If you feel that the risk is worth it in light of the potential savings, then this is a good mortgage choice for you. However, if you prefer certainty with your mortgage, you will probably be more comfortable with a fixed rate mortgage.

To Apply for a base rate tracker mortgage, please visit our mortgage quote page.