The rise and fall of base interest rate makes the tracker mortgage little unpredictable. When the interest rates are falling, tracker mortgage becomes a very good option. On the other hand, when the interest rates are rising, tracker mortgage might increase your interest payments. While everyone would like to know what the tracker mortgage rates would look like in future, it is actually very difficult to predict with 100% accuracy. However, there are some pointers that you can look at to get some clues on where the interest rates might be heading.
Traditionally, people make an educated guess or prediction about the rates of tracker mortgages. There are also quite a few people who have historically been very good at figuring out where the rates are going. One of the biggest things connected to the Bank of England’s base rate is the current economic condition. The stronger the economy, higher is the probability of a high base rate. The same rule applies on the flip side too. If the economy is not doing good, the Bank of England lowers the base rate to help stimulate home purchases. This is one of the ways to get the economy moving again. Tracker Mortgages provide the most benefit during such a times.
Since the mortgage lenders and brokers spend a lot of time tracking trends and looking at historical data, you can always talk to them to check whether they have some insight into the BoE’s future base rate. They may not always be right, but they are better equipped to predict BOE’s policy decisions. They also have access to numerous other people in the same field, helping them to provide better insight into tracker mortgage rates.
Unfortunately, like most other things in life, nothing is certain. If your ability to afford the mortgage hinges completely on the base rate staying very low over the course of your mortgage, then you might have to take a step back and re-evaluate your decision. You may not necessarily decide against buying a house, but you should reconsider your decision on whether tracker mortgage is right for you. Your mortgage broker might be able to suggest some other mortgage types that are a better fit for your particular situation.
Here is one example to prove just how much your payment can vary by only a 4% change in the base rate. If you have a mortgage payment based on a $350,000 dollar loan with a 5% interest rate, you have to pay around $1,800 dollars a month. Now if the base rate increases over time and settles at 9%, only 4% higher than when you originally took out the mortgage, your new mortgage payment based on that increased interest rate would be $2,800 dollars. Roughly a $1,000 dollar increase per month. Can you imagine what would happen if the base rate increased even more?
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