Discounted and tracker mortgages are both types of variable mortgages. Changes in the Bank of England Base rate will therefore change your cost of mortgage. If you don’t like the idea of a variable mortgage choose a fixed rate deal that gives you security of knowing how much to pay.
A discounted mortgage is a mortgage where the interest rate is set a certain amount below the lenders Standard Variable Mortgage rate. e.g. Some of the best discounted rates at the moment would give a rate of 5.64% for 3 years. Principality although has a £ £1,349. If the lenders standard variable rate falls, then the discounted mortgage rate will also decline.
A tracker mortgage is tied directly to the Bank of England’s Base rate. Therefore, if the MPC cut base rates, it will cause a corresponding decrease in your tracker rate.
Difference between Tracker and Discounted Mortgage
The essential difference between a tracker and a discounted mortgage is that a cut in the Bank’s base rate will reduce a tracker mortgage, but will not necessarily lead to a reduction in the lenders SVR.
Base rates only act as a guide for Lenders SVR.
In the coming year, we are likely to see a increased divergence between the Bank’s Base rate and lenders SVR. This is due to the shortage of credit in the financial markets.
Therefore, even if discounted mortgages offer a slightly better deal, you may be better off going for a tracker mortgage.
As usual, with any mortgage product, you will want to check fees, and conditions attached to the mortgage. Make sure you don’t get left with a long period of being tied to the lenders SVR.