Category: Mortgages

Is a Tracker Mortgage Worthwhile?

There are many types of mortgage and it is worth understanding the differences between them before you choose one for you. Whether you are looking for your first mortgage or thinking of switching mortgages it is really important to make sure that you are able to use the mortgage that is most suitable to you. This should mean that you will get the best value for money form that mortgage. However, if you do not know what the mortgages are, then it will make it very difficult for you to choose between them. Many people understand the difference between the main two mortgage types – fixed and variable, but there tends to be some confusion when it comes to tracker mortgages. They are less common but still good to consider. Therefore it is worth finding out more about them and how they work.

What is a Tracker Mortgage?

A tracker mortgage is a type of variable mortgage. This means that the interest that you pay will vary and therefore it could go up or down and this means that the amount of money you pay each month will go up and down as well. Unlike a normal variable mortgage though, the interest rate is made up of two parts. There will be a fixed percentage that you always pay which will cover the mortgage companies’ costs and then you will also pay the base rate on top of that. The base rate is the mortgage rate set by the Bank of England. This rate has the potential to change each month as a panel of employee from the Bank of England will discuss what it should be. They generally will adjust the rate according to inflation, as they have a government target to keep inflation at a certain level and they will adjust the interest rate to try to influence inflation. Therefore, the rate of interest of the tracker mortgage could potentially change on a monthly level in line with what the Bank of England does.

Who Does it Suit the Best?

Some people like to know exactly how much they will be paying each month with regards to interest and they will benefit most from a fixed rate mortgage. However, if there are people that like the idea of a variable rate mortgage, because of the flexibility (you are tied in to a fixed rate) and the fact that it is often cheaper, then a tracker could be worth considering. There is one main advantage and that is because when the base rate is reduced, your mortgage rate will immediately go down. This is something that will never happen with a fixed rate and is not guaranteed to happen with a general variable rate mortgage. This means that there is a big chance that the tracker will be cheaper. Of course, as soon as rates go up, you will have to pay more with your tracker mortgage. However, it is very likely that any lender will put their rates up when the base rate goes up anyway, so that they can male more money, they are far less likely to put the rates down.

Therefore, if you want to try to take advantage of falling interest rates then a tracker mortgage could work for you. Obviously, you will need to check the priced and compare them to other types of mortgages to work out how they compare and whether they do look as if they will save you money or not. You will also be wise to think about what you think might happen to interest rates in the near future so that you can decide whether you will want to take advantage of them decreasing or protect yourself from them increasing. This is not easy to work out but if rates are low they are more likely to rise and vice versa, although you can never guarantee it.

Easy Steps to Repaying Your Mortgage Early

Many people like the idea of repaying their mortgage early. This is because it means that it will be cheaper as they will be paying interest for less time. It also means that they will no longer need to find the money each month to make the repayments and can use it for other things or put it into a savings account. Some people find that the burden of having a mortgage hanging over them is stressful and so repaying it early can help with that. However, there is a big difference between wanting to do this and having the resources available to actually do it. There are things that you can try though, which will help you to have more money available to make overpayments.

Switch to a Cheaper Mortgage

The first useful step is to switch to a cheaper mortgage. This will allow you to be able to pay less in interest on the mortgage and so you will have more money available for the actual repayment. This will be easier for some mortgages than others though. You will find that there are some mortgages where you might be tied in for a particular time. This is most likely when you have a fixed rate mortgage. If your mortgage is like this then you will not be able to move lenders until this time is up and you may even need to stay with them afterwards too. Soe will charge a fee if you switch. This can just be a small administration fee but with some lenders it will be a significant amount of money. It is therefore worth checking this to start with and seeing if there is a charge and if there is then working out of it is worth paying considering hat you might be able to save. Make sure that you compare all lenders that you can find and then you will know exactly who is the cheapest.

Use Your Savings

If you have some savings then it might be a good idea to use these to repay some or all of the mortgage. This will normally be well worthwhile, bit it will depend on how much interest you are getting on your savings. Normally savings interest is very much lower than mortgage interest so it is worth using the savings to repay. However, there may be some cases where this is not the case and it is important for you to check this out. So, find out what the interest rate if on your savings and what it is on your mortgage and compare. Do bear in mind that there may be other fees to pay with the mortgage too. You may have to buy insurance, such as life insurance to go alongside the mortgage as well, which you would not otherwise have and that could add to the mortgage expenses.

Pay Less for What you Buy

It is well worth comparing the prices on the things that you are buying to see whether there are things that you could buy for less. For example, many of us stick with the same mobile phone provider, insurers, electricity providers etc, year after year but if we compared prices we could find that we are paying a lot more than necessary and that we should consider switching so that we can pay less. It is well worth comparing the prices on everything that we are buying and that could help us to have more money available to put towards paying off the mortgage without having to buy less,

Use All Spare Money for Mortgage

It is wise to make sure that all of the spare money that we have is put towards the mortgage. Therefore, if you have money left in your account after buying essentials, then it can be wise to transfer it to your mortgage account so that it can go towards repaying it.