What is a Tracker Mortgage?Written by John Mussi
A tracker mortgage 'tracks' Bank of England base rate, meaning your mortgage stays in line with interest rates and market in general. The result on your monthly mortgage interest payments is that they go up when base rate goes up and go down when base rate goes down. A tracker mortgage works in a similar way to a standard variable rate mortgage in that it follows rate imposed by Bank of England. Whereas standard variable rate mortgage changes monthly or annually a tracker mortgage usually guarantees to follow changes in bank base rate within 14 days of it happening. Thereby borrower benefits from both falls and rises in interest rates sooner. A tracker rate is one that has a fixed differential to Bank of England rate and is contractually bound to change within a certain time of Bank changing its rate. Thus, tracker mortgage might follow base rate up and down as it fluctuates. The mortgage lender will make profit by charging an amount over base rate. This kind of mortgage is useful for people who are happy for their outgoings to change, but want their mortgage to reflect changing costs of borrowing. Tracker mortgages are often suited to borrowers who are looking for cheap initial payments and can take risk that their payments could increase at a later date.
| | What is an Interest Only Mortgage?Written by John Mussi
An Interest Only Mortgage is one where repayments are made up entirely of interest on loan. When mortgage term is complete, capital originally borrowed is still outstanding. To cover balance, borrowers are advised to make regular contributions into an investment policy alongside their mortgage repayments. This can be arranged by mortgage provider, most commonly in form of an endowment mortgage, an ISA mortgage or a pension mortgage. With this type of mortgage, mortgage lender is advancing you money and asking you to do no more than pay interest each month. In other words you are merely servicing debt, and amount outstanding on your mortgage will remain constant. An interest only mortgage can be an excellent choice for some borrowers, who have a valid use for a lower initial required payment. The actual capital which is freed up to pay for your property can be invested into a long term investment fund, which, if invested carefully, ought to help pay off both your mortgage earlier than expected, and may even be used to cover cost of your interest only mortgage payments. With interest only mortgages, most borrowers take out some kind of savings plan to ensure that at some time in future they will have enough money to pay off their mortgage and have satisfaction of knowing that bricks and mortar belong to them. With an interest only mortgage, a borrower will invariably take out an endowment policy, a pension, or an ISA. In addition, it is always good practice to arrange adequate life cover to ensure that should mortgage payer die loan will be repaid in full.
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