What is a Tracker Mortgage?
Tracker mortgages are a combination of flexible payment options and an interest rate that follows, or tracks, the Bank of England base interest rate. Tracker mortgages can be very beneficial to borrowers, giving more control and financial freedom. The reason for this is that the borrower has a large element of choice when it comes to making payments. You can pay additional amounts on top of your regular monthly payment. You can pay less than the regular monthly amount, you can even possibly take, what are known as ‘payment holidays’, all depending on your financial situation at any one time. This type of mortgage has proved to be very popular with self-employed people or salesmen who work on a commission only. Therefore, are never been sure of how much they will bring home each month. The tracker mortgage can possibly save a large amount of money in the long term. If you are able to make overpayments to your monthly mortgage bill, either as a one-off lump sum, or on a regular basis.
A tracker mortgage is fairly new to the Irish mortgage market. It is similar to a standard variable rate mortgage, with one main difference – it ‘tracks’ the European Central Bank (ECB) rates. The benefit is that it commits the lender to keeping their ‘margin’ (the markup they charge on top of the wholesale rate) under a certain level. When interest rates dropped recently, some lenders with standard variable rate mortgages didn’t pass on the full benefit of the rate drop – tracker mortgages generally passed on the full rate drop, as the mortgage contract guaranteed that the mortgages would always be no more than x% over the ECB rates.
