This isn’t a trick question. Worryingly for borrowers, there are conditions written into some tracker deals which mean they don’t always work the way you might think.
Typically, mortgage lenders offer a tracker at a set margin above or below the Bank of England base rate. So your tracker rate might be 2% higher than the base rate (BBR +2%). That means, today, when the base rate is 3%, your mortgage interest rate would be 5%.
If the base rate fell to 2.5%, the interest rate on your tracker should, in theory, drop from 5% to 4.5% and you’ll be quids in!
But, on the downside, if the base rate increased to 3.5% instead, your tracker rate would rise from 5% to 5.5% making your mortgage repayments more expensive.
Not surprisingly, tracker mortgages are pretty popular right now because it looks like further base rate cuts are on the cards. Experts certainly agree reductions are likely with some predicting the rate could fall as low as 2% -- or even 1% -- next year. (But, of course, there are no guarantees.)
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