Image courtesy of Craig Sunter
Image courtesy of Craig Sunter

Tracker mortgages seem to be growing in popularity lately. These are the types of mortgages which will track the base rate. So any changes in the base rate will be reflected in your mortgage rate. The reason they are getting more popular is probably because of the low interest rate and the fact that it is thought that it may fall again.

However, just because something is popular, it does not mean that it is the right thing for you to do. You will need to have a think about whether switching to a tracker mortgage could be worthwhile.

The cost is very important. It may seem that a mortgage that tracks the base rate is the most fair and as it will only change when the base rate changes you will be protected against sudden increases and it will lower when the rate falls. However, you will find that the lender will add on a fee together with the base rate when calculating your interest. This is likely to be a fixed percentage. This means that even if the base rate was zero, you would still have to pay something to the lender. This fee varies between lenders and so you will need to compare them to see which is the best. You may also find that some lenders will change their fee, so even if the base rate falls or remains the same they may raise their fee so you pay more anyway. This could be in the contract so check carefully. You may also find that there are fixed rate and variable rate mortgages that are cheaper than a tracker so make sure that you compare them all to see which will be the best for you. There will also be fees associating with changing your mortgage and so you will need to check to see whether paying these fees will make it too expensive for you to change lender.

As with all things, there are other things to consider as well as the price. You need to think about the customer service that you will get, whether you like that particular lender, what might happen if you miss a repayment and how you think they might treat you and things like that. It is also worth considering whether you may feel more secure if you had a fixed rate mortgage when you know how much you have to pay each month without the risk that it might go up. Tracker mortgages can be great when rates are falling, but if rates start to creep upwards, they can be difficult as you may not be sure how much more you will be paying month to month. This could be the same insecurity that you get with a variable rate, but with those you will not know whether it will rise in between base rate changes and if the rate falls, there is no guarantee that your rate will fall. It is therefore quite a complicated decision and may depend on the current economy and the likelihood of rates rising or falling.