Pete Mugleston | Mortgage AdvisorPete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.
Updated: 10th September 2019 *
Discount tracker mortgages are a sought-after product among many of our customers. They can be cheap, come with low interest rates and potentially allow you to switch to another product with no penalty. Do you want to know more? Make an enquiry so we can connect you with an expert who specialises in these products or read on for more information...
Discount tracker mortgages are mortgage products which peg their rate to that of the Bank of England, adding a certain percentage to its interest rate.
The Bank of England, in turn, pegs its rate to the UK economy, so when times are tough, the bank’s rates rise, which means you get larger repayments and vice versa when its rates drop.
Example: if the Bank of England’s base rate rises by 0.5%, your rate goes up by the same amount. If it drops by 0.5%, your rate drops by the same amount.
With a discount tracker mortgage, the lender adds the discount feature which gives you a discount of the product, typically for two to three years.
Can I get a 1-year discount tracker mortgage?
Yes. Discount tracker deals stretch from one to five years. They’re also called introductory tracker terms, since they’re for a limited time. In contrast, you can land lifetime tracker terms that are for the duration of your term, but these cost more, giving you smaller discounts.
So, if you’re given a lifetime tracker mortgage, your provider may set the interest level 3.5% above the Bank of England's base rate, for example.
What happens when the term of my discount tracker mortgage is up?
Your lender will most likely transfer you to their (usually) more costly standard variable rate (SVR) or to another tracker rate with a higher margin, at the end of your term.
In these cases, many customers consider remortgaging to a simple discount mortgage or to another tracker deal.
Three to six month before your deal ends, use a whole-of-market broker to shop around for an alternative. You would likely have to pay an exit charge or an early repayment fee.
Can I switch mortgage products to discount tracker mortgages?
Most banks allow you to transfer, say from a fixed rate mortgage to a discount tracker rate deal, but they will most likely charge you an early repayment and/ or exit fee for moving before your term is up.
Discount tracker mortgages & “collar terms”
Since the base rate of the Bank of England may peak significantly, resulting in minimal payments, many lenders (not all) cap at a certain price. This is called “collaring”.
A good idea is to ask lenders their collar habits, or better yet, ask your broker to do this for you when they’re searching the market for the right deal for you.
Call us on 0808 189 2301 or make an enquiry here and we’ll put you in touch with experts who may be able to find you great deals that aren’t available to the public.
What are the benefits of a discount tracker mortgage?
The tracker is one of the best mortgage features to choose.
Introductory tracker rates tend to be among the lowest available.
Tracker rates often have cheap to no early repayment fees, which means you can potentially make overpayments (usually as much as 10%) and reduce your debt.
Their arrangement fees (also called completion or booking fees) tend to be lower than for fixed rate mortgages.
Some lenders have a “switch & fix” feature, which means you can choose one of their fixed mortgages if rates go up, without paying a fee.
Disadvantages of discount tracker mortgages
On the other hand, discount tracker mortgages have potential drawbacks that include:
When the Bank of England interest rate rises your mortgage repayment rises too
Fluctuations are volatile making budgeting unpredictable
Watch out for charges if you want to leave before the discount feature expires.
Your introductory period lasts up to five years. You’re then switched to the usually higher tracker rate or to your lender’s more expensive SVR.
How do I get the best discount on a tracker mortgage?
Work out what you can afford - can you afford to repay when rates spike?
Look at the fees. These include the arrangement/ booking fee, valuation fee and legal fee (some lenders waive the last).
Get whole-of-market unbiased advice. That’s where we come in. Make an enquiry here and we’ll introduce you to a whole-of-market broker who can find the best discount tracker mortgage deals for you
Speak to a discount tracker mortgage advisor
Looking for more information on how to get a discount tracker mortgage? Call us today on0808 189 2301 or make an enquiry here.
Then sit back and allow us the hard work in finding the right pensions advisor for your situation. We don’t charge a fee and there are no obligations.
*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA.Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.
Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes.
The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.
Pete's presence in the industry as the 'go-to' for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!
Read more about Pete here...