Another variation on the variable rate theme, is the base
rate tracker mortgage.
Up or Down!
You will make payments to your mortgage lender, based on the
Bank of England determined Base Rate. Your mortgage payments
go up or down in line with fluctuations in this rate.
The same, but different
This up and down variation is exactly what happens, of course,
with a Standard Variable Rate mortgage. Where the tracker
differs, is that your mortgage lender 'fixes' the interest
rate that you will pay, usually a percentage point or fraction
above the prevailing Base Rate, at the time you take out the
mortgage. You have the peace of mind, therefore, that no matter
what else happens in the marketplace, or with the lender,
you will only pay the exact fixed amount above the Base Rate.
Collars are Common
A collar is a restriction on a tracker mortgage imposed by
the lender, that limits reductions in the tracker rate to,
say, 3%. In this scenario, suppose the base rate was 3.5%.
If it fell to below 3%, you would not benefit from this reduction
Up-front charges and 'lock-ins' are common with tracker
mortgages.
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