The primary reason for choosing a tracker mortgage over the other main type of variable rate mortgage - the discounted rate loan - is that your monthly interest repayments will be linked directly to UK interest rates.
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These are set by the Bank of England and not by your mortgage lender. If UK interest rates fall, your monthly repayments will also fall right away. You will not have to wait for your mortgage lender to pass the effects of a rate cut on to you by reducing its Standard Variable Rate (SVR), as you would if you held a discounted rate mortgage deal. Of course, should UK interest rates rise then you will experience higher monthly repayments immediately.
Most tracker mortgages offer a small discount to UK interest rates for a limited period. After the initial period expires, most deals then begin to charge interest at a small premium to UK interest rates. Despite this you can still find yourself better off than you would be if you were paying a mortgage lender’s SVR, as these are typically 1-1.5% above UK interest rates.
It is normally possible to find tracker mortgages that can beat those rates over the long term. There will normally be an early redemption penalty if you re-mortgage during the initial discount period.
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