Quick Enquiry
These Mortgages are a variation of a Variable Rate Mortgage. They guarantee to be a certain percentage in excess of the London Interbank Ordinary Rate (which is the interest rate that the Bank of England lends to commercial Banks) or the Bank of England Base Rate in the case of most Tracker Mortgages.
So as the LIBOR or Bank of England Base Rate change the LIBOR or Tracker Mortgage does by the same amount. If the Bank of England Base Rate was 5% and the Tracker Mortgage guaranteed to be 2% greater, then you would be paying 7%.
If the Base Rate was then to go up 1% to 6% you would be paying 8% (i.e. new Base Rate (6%) plus the 2% guarantee).
Advantages
- The interest rate you pay moves immediately that the Base Rate changes, Lenders rarely pass on changes to borrowers immediately
- You are guaranteed the percentage rate that your loan will exceed the Base Rate by. This prevents you from suffering from your Lender becoming uncompetitive with their existing borrowers standard variable rate.
Disadvantages
- You need to make sure you get a competitive guaranteed rate above the base rate and that the base that the Lender uses is also competitive as this can sometimes be a rate set by the Lender rather than using an independent rate such as LIBOR or Bank of England Base Rate
- When rates rise you are subject to the increase immediately
