Tracker Mortgages

Most homeowners don't know what a tracker mortgage is according to recent studies. Research shows that homeowners could be missing out on great deals because of this.
More than half of homeowners in Ireland do not understand how a tracker mortgage affects monthly payments. Only one third know that the interest rate on a tracker mortgage is linked to the European Central Bank (ECB) base rate.
Not understanding what a tracker mortgage is means many homeowners could be unaware of an option which could keep their monthly payments down. If you are in the dark, then help is at hand.
Tracker mortgages have variable rates which are closely linked to the interest rate set by the ECB. This is known as the 'base rate' and it is reviewed each month. This is the most widely used benchmark or reference rate for short term interest rates.

How trackers work
Tracker rates are usually set at a slight margin above the base rate - usually a percentage, such as 0.75% above base rate. Of course, this is good news when rates are dropping but it works the other way too. Climbing rates will be passed on to you as well. But trackers are often chosen as a middle ground between fixed and variable rate mortgages as they tend to offer low rates and transparency.
When rates are cut, lenders often take their time passing on the benefits to borrowers - although they are usually quick off the mark to put increases into effect. With a tracker mortgage, you can reap the rewards straight away when the base rate drops. It is possible to get deals which track the base rate for the life of a loan. An alternative is a deal which tracks base rate for just a few years and then automatically switches to the lender's standard variable rate (SVR). These are notoriously uncompetitive and signal the time to shop around again. Just make sure you are not locked into the SVR for a period after the tracker rate ends.

Collars and scuffs
A large proportion of homeowners are unaware of what a tracker mortgage is and how it could save them money on their monthly mortgage payments, says Ken Murray of leading Irish Mortgage Brokers, Mortgage Plus. There are certain advantages to choosing a tracker mortgage, especially with low interest rates. However, homeowners should ensure they fully understand what type of mortgage they have; they can then be financially prepared should their monthly payments rise.

So what sort of borrower is likely to do well from a tracker mortgage? Ken Murray says: 'Tracker mortgages generally suit those who have a degree of flexibility in their budget and so stand to benefit from cuts in their monthly mortgage payments following a base rate cut, as well as afford any increases. It is important that anyone seeking to take out a mortgage for the first time seeks advice from a qualified mortgage adviser to ensure that the mortgage they choose will be right for their individual circumstances.