A tracker mortgage will change its interest rate according to changes to the base rate. This means that if the base rate goes down, the mortgage rate will immediately go down. If the interest rate goes up, then the tracker mortgage rate will go up too. This can be a really good mortgage to have in some circumstances. The lender will always add on a percentage to the base rate to cover their costs. This varies a lot and so it is worth comparing different rates to make sure that you get ones that is favourable.
Timing a tracker mortgage is actually quite important with regards to whether it is the best financial option for you. However, it is not always that easy to know exactly what will happen to the economy and interest rates, particularly in the long term. There are some things to consider though.
If the interest rates go up, the tracker rate will go up immediately. Therefore, it could be felt that it will be sensible to only take out a tracker mortgage if the rates are not likely to go up. Apart from the fact that it is difficult to predict when rates may go up, it is likely that most other lenders will also put their rates up. Usually lenders will quickly put rates up when the base rate goes up so that they can make up for the increase in borrowing cost to them, by charging those borrowing form them more money.
However, when rates go down, lenders tend not to be so fast in reducing their rates. They want to try to keep rates to those borrowing form them high even though they can borrow at a lower rate so that they can make more profit. However, the tracker rate will go down right away. This implies that a tracker is more beneficial when rates are falling. However, it can still be a good choice when rates rise as long as you get a good deal from your lender, with the extra percentage on top of the base rate not being to high.
As this mortgage is a variable rate, there could be some risk for borrowers if rates go up. When rates rise, the repayments will increase for those borrowing. If the mortgage is already a big percentage of their income, it could mean that they will find it very difficult to manage. This is why some decide to have a fixed rate, at least for a few years, so that they will know that they will manage. Obviously there is a disadvantage to this if rates go down, particularly if the fall rapidly and significantly. However, due to the fact that it is so hard to predict rate changes then it could be best to protect yourself just in case, as you do not want to risk not being able to cover your repayment costs and having to default on one.
So knowing when to take out a tracker mortgage can be difficult. If you feel having a fixed rate is best for you, so that you can predict exactly how much you need to pay back due to a lack of available funds then it could be safer to avoid having one. However, if you can risk making the payments higher as well as lower, you might feel that you would rather have a tracker mortgage. Of course, if interest rates are really high, then there is a bigger chance that they will fall and if they are low, there is a bigger chance that they can rise. Therefore this should be taken into account as well.
It can be quite a difficult calculation to consider the risk of this sort of mortgage. Of course, you may want to consult a financial advisor and see what they have to say about it. They will be able to explain everything to you so that you can decide whether you think that you would be better off with this sort of account. Of course, you can make the decision yourself, but it could help you to be more confident in your decision if you consult expert help. You will need to pay for it, but it could be worth it if they help you to find a mortgage that saves you money. However, like everyone else, they are not able to predict the future.
Therefore the key factor when making the decision about whether to take out a tracker mortgage is whether you can afford to risk the rates going up and if not, a fixed rate could be a better option. However, fixed rates only last a few years and then you will need to decide whether when you change to a variable rate whether a tracker will be best. This could very much depend on the extra percentage charged by the lender and how that compares to the costs of other variable rate mortgages.