A tracker mortgage is a type of mortgage loan that follows the Bank of England base interest rate. A tracker mortgage, or base rate tracker mortgage, is a variable rate loan that changes rates depending on the level of interest rates set. It is a popular product in the UK. When people are remortgaging, it’s tempting to be attracted to the best mortgage rate on the market, which often tends to be a discount or a tracker mortgage. It is a variable rate mortgage which always follows the Bank of England’s Base Rate, so your payments will change in accordance with external market interest rates.
You will quickly benefit from any potential changes, plus the rate on your mortgage always maintains the same differential between the rate you pay and the interest rate set by the Bank of England.A mortgage loan is directly linked to an interest rate, and for a specified period it will cost a set percentage amount higher than this rate. For instance, if the mortgage is anchored to the base rate at 1 per cent above, and the base rate is set to 5 per cent, the rate you have to pay will be 6 per cent.
Tracker mortgages are often suited to borrowers who are looking for cheap initial payments and can take the risk that their payments could increase at a later date. A number of different rate tracker mortgages are on the UK market, including two-year mortgages, five-year mortgages, ten-year mortgages and mortgages that track a rate for the life of your loan. The application fees, product and valuation fees, and flexibility of the loan will depend on the lender and your circumstances.
Self certified mortgages are those mortgages, where you confirm your income without the need for independent verification and are generally for self-employed people, those who have irregular earnings, or those whose income comes from a number of different sources. The good news is that they no longer need to cost the earth; competitive self-certification mortgage rates are now offered by many mainstream lenders. Mortgage lenders usually use salaries declared on wage slips to work out a borrower’s annual income and will usually lend up to a fixed multiple of the borrower’s annual income. Self Certified Mortgages, informally known as “self cert” mortgages, are available to employed and self employed people who have a deposit to buy a house but lack the sufficient documentation to prove their income.
This type of mortgage can be beneficial to people whose income comes from multiple sources, whose salary consists largely or exclusively of commissions or bonuses, or whose accounts may not show a true reflection of their earnings. Self Certified mortgages allow you to borrow potentially larger amounts than the normal full status loan, as no proof of income is required. You simply sign a declaration to say that the loan repayments are affordable. It’s possible to secure you a loan of up to £1million in this way! Some lenders will want to write to your accountant to verify that you are trading but on the whole the underwriting of your loan should trigger no income checks at all. Due to the greater risk associated with lending on a self-certification basis, lenders have traditionally charged higher interest rates than those available through more mainstream channels.
Over the past year Contractor money been able to secure self certification terms on mortgages with a number of High Street lenders and can now offer contractors access to the far lower rates normally only available to ‘full status’ borrowers. Unlike contract-rate based mortgages ‘self-certs’ generally require 10-15% deposits. To secure the more competitive, lenders will need to provide a deposit of 15-25% of the purchase price. As with all services that Contractor money provides for Contractor UK visitors, we charge none of the usual brokers fees associated with other advisers (these can sometimes amount to as much 1%+ of the loan). With a self cert mortgage you will pay the usual valuation fee, legal fees to your solicitor and may pay an arrangement fee to the lender depending on the type of scheme you go for.
Offsetting savings or current account deposits against mortgage debt in a single, rolled-up account began in Australia decades ago. The concept took off here in the late Nineties. The principle is simple: most mortgage borrowers also have savings, even if they are small, and using this money to cancel out mortgage debt makes sense. Savers avoid paying tax on interest that their deposits would otherwise have earned. And because offset mortgages lenders calculate interest daily, every pound on deposit works hard to reduce the cost of borrowing.
Not to mention the fact that in a low interest rate environment, any savings you have are effectively earning interest at a higher rate than most mainstream savings accounts will pay. Offset mortgages are new kinds of mortgages that offer flexibility to homeowners. It works by allowing you to offset your credit balances on some accounts against the debt balances on others. For example, if you have an outstanding mortgage loan of £100,000 and you have £10,000 in savings, offset loan providers will allow you to pay interest only on the total amount of debt.
This means that you will pay interest on £90,000 instead of on the full amount as with a standard mortgage. Over the course of time, this can save you a great deal of money in interest payments. The same principle applies to credit card balances and current accounts. As part of an offset mortgage, with some lenders you can offset the credit balance in your current account against the debt balance on your credit card and pay interest only on the total amount of debt you owe. What is more, you can repay the interest at the lower mortgage interest rate rather then the standard annual percentage rate (APR) of the credit card*.