One much underused resource in the mortgage industry is the tracker mortgages or rate tracker mortgages. Due to a general lack of knowledge about it, borrowers tend to go for fixed rate or variable rate mortgages. However, with the uncertainty surrounding interest rates in today’s economy, a tracker mortgage may be a good choice for many potential mortgage customers who are concerned with being trapped in a high fixed rate mortgage.

Tracker mortgage is an alternative to fixed rate mortgages. It’s called a tracker mortgage because your interest rate will “track” the Bank of England’s base rate.

Many tracker mortgages only run the tracking element for a limited time, (anything from 1 to 10 years) before the mortgage is reverted to the lender’s standard variable rate of interest (SVR). If you are considering a flexible tracker mortgage for a short period, you need to find out what the SVR is likely to be once you’ve stopped using the tracker feature. A standard variable rate mortgage means the interest rate is set by the individual lending company and it is their decision as to whether they pass on the Bank of England’s rate change to their customer.

They can offer very competitive rates but if you’re on a tight budget and can’t withstand any increase in your monthly mortgage repayments, and then you’d probably be safer with fixed rate mortgage instead. A tracker mortgage is probably best suited to people who enjoy a little more risk in their lives.

With this kind of mortgage there are the options to revert to a tracker for a fixed period which is usually 2 or 3 years. The mortgage repayment will be calculated upon the Bank of England’s base rate during this period. After the agreed tracker rate period expires then the mortgage will revert to the standard variable rate. During a period of interest rate reductions, your mortgage repayments will decrease accordingly. After the product expiry date you will have the option to review and make a further decision based upon market conditions at that time.

Finding the best offset mortgages deal can be challenging. There is a huge amount of information on the internet and on the high street about offset mortgages, but instead of giving you clarity, it can leave you overwhelmed and confused as to which is the best offset mortgages deal on the market.

Offset mortgages link the balances in a borrower’s mortgage account and/or savings account. Interest earns from the savings and/or current accounts are used against the mortgage debt and in theory; the mortgage can be paid off quicker. It is also flexible and allows overpayments, underpayments, and sometimes payment holidays.

Offset mortgage could also cut your credit card bills as offsetting the credit debt could save you huge amounts. Instead of paying even the lowest rate of 14.9 percent, you will only pay the interest rate connected to an offset mortgage which is around 6 or 7 percent, certainly less than credit card APRs. This means you could be making massive savings on your credit card debt, as well as your mortgage.

The interest rate also varies considerably – from a 6-12 month fixed rate, to a tracker guaranteed to stay below the base rate for 6 months, or a tracker which tracks the base rate for a set amount of years, but also charges a minimal premium.

The amount you are borrowing compared to the value of the property will also affect the interest rate. At the moment one lender will give an interest rate of 5.6% for people that are borrowing less than 50% of the property value, whereas anything above that (up to 99%) will have an interest rate of 6.45%.

The concept may be easy for you to get your head around, but the sums won’t be. See an independent mortgage adviser for individual advice tailored to your circumstances, it’s the only way to be sure that the offset is best for you. However, we think that if you have savings and pay interest at a higher rate, you’ll be onto a winner with the offset.

He went on to say that by choosing an offset mortgage, customers would then not only be able to pay off their home loan quicker but also have the back up of their savings should they ever need to use them.

In the United Kingdom, there are different types of mortgages to choose from, which include a mortgage that is a big success in Australia, from where it originated. It is called an offset mortgage. Basically, an offset mortgage use the interest earns from your accounts and current accounts against your mortgage interest; and as a result this reduces your overall mortgage repayments.

With offset mortgages, your mortgage account runs alongside all your other accounts, and the net balance for all the accounts is calculated, normally on a daily basis. The interest is then worked out on the overall total you have in your accounts. All the interest you have earned from your savings and current accounts goes straight into your mortgage account.
The interest rate payable on a mortgage is normally far higher than what your savings will earn in a current account. For example, the rate of interest your savings will earn in a current account may only be 1%, compared to the interest on your mortgage, which may be 6%. It’s a far more efficient to use the money in your savings to pay off the mortgage than it is to leave it in a low interest paying account.