Barclays offers a wide array of mortgage products tailored to meet the diverse needs of both new buyers and existing homeowners. Among the most popular choices are fixed-rate and tracker mortgages. In this guide, we will delve into the details of Barclays tracker mortgages, exploring their features, benefits, and potential drawbacks to help you make an informed decision.
What is a Tracker Mortgage?
A tracker mortgage is a type of variable rate mortgage where the interest rate is linked to an external benchmark, usually the Bank of England’s base rate. As the base rate fluctuates, so does the interest rate on the mortgage, which can result in varying monthly repayments. The key characteristic of a tracker mortgage is its transparency and predictability in terms of how the interest rate is set, though the payments themselves can vary.
Why Choose a Barclays Tracker Mortgage?
Barclays offers tracker mortgages that are designed to provide flexibility and potential savings for borrowers. Here are some reasons why you might consider a Barclays tracker mortgage:
- Competitive Rates: Barclays often provides attractive initial rates that can be lower than fixed-rate options.
- Flexibility: With a tracker mortgage, you can benefit from any reductions in the base rate, leading to lower monthly payments.
- Transparency: The interest rate tracks the Bank of England base rate, so you always know how your rate is determined.
- No Early Repayment Charges: In some cases, Barclays tracker mortgages come with no early repayment charges, allowing for greater flexibility if you wish to pay off your mortgage early.
Fixed or Tracker: Which is Right for You?
Choosing between a fixed-rate and a tracker mortgage depends on your financial situation and your outlook on future interest rates:
- Fixed-Rate Mortgage: Provides stability with a consistent interest rate and monthly payments throughout the term. It’s ideal for those who prefer certainty and want to avoid the risk of increasing rates.
- Tracker Mortgage: Offers potential savings if interest rates fall but comes with the risk of higher payments if rates rise. It’s suitable for those who can accommodate fluctuations in their budget and are comfortable with some uncertainty.
Example of a Tracker Mortgage with Payment Increases
Let’s say you take out a Barclays tracker mortgage of £200,000 with a rate of 1.5% above the Bank of England base rate. If the base rate is initially 0.5%, your mortgage rate would start at 2.0%.
Monthly Payment Calculation (Initial):
- Loan Amount: £200,000
- Interest Rate: 2.0%
- Term: 25 years
Initial monthly payment: approximately £848
Now, if the base rate increases by 0.25%, your mortgage rate rises to 2.25%.
Monthly Payment Calculation (After Rate Increase):
- New Interest Rate: 2.25%
New monthly payment: approximately £870
As the example shows, even a small increase in the base rate can lead to higher monthly payments, emphasizing the importance of considering potential rate fluctuations when opting for a tracker mortgage.
Types of Tracker Mortgages Offered by Barclays
Barclays provides two main types of tracker mortgages, each with its own terms and conditions:
- 2-Year Tracker Mortgage: This option offers a variable rate that tracks the Bank of England base rate for two years. It can be suitable for those looking for short-term flexibility and the opportunity to switch to a different deal after the initial period.
- 5-Year Tracker Mortgage: This longer-term option tracks the base rate for five years, providing a balance between medium-term rate flexibility and the potential for lower rates over a longer period.
Terms of the tracker mortgage
Barclays offers tracker mortgage products, typically available as 2-year or 5-year trackers. These products often have tiered options: one with lower interest rates but an upfront fee, and another with higher interest rates but no upfront fee. To determine the cheapest overall cost, it’s important to factor in both the interest rate and any fees. Upfront fees can usually be added to the mortgage. Additionally, check for exit fees, as some tracker products have penalties for early repayment. Always review the terms if you plan to repay some or all of the tracker early.
What happens after the tracker mortgage product ends?
When the tracker period ends on a mortgage, several options are available:
- Choose a New Product:
- Fixed-Rate Mortgage: You can switch to a fixed-rate mortgage, where the interest rate remains the same for a specified period, providing stability in your monthly payments.
- New Tracker Mortgage: You can opt for another tracker mortgage if you prefer to continue with a rate that follows an external benchmark, like the Bank of England base rate.
- Revert to Standard Variable Rate (SVR): If you do nothing, your mortgage will automatically switch to your lender’s Standard Variable Rate (SVR). SVRs can fluctuate and are typically higher than the initial tracker rates, leading to potential increases in your monthly payments.
- Repay the Mortgage: If you have the financial means, you can choose to repay the mortgage in full, thus eliminating any future interest payments and owning your home outright.
What are Barclays Tracker mortgage rates
Barclays tracker mortgage rates are variable interest rates that track the Bank of England base rate plus a set margin. These rates depend on several factors, including market conditions, the loan-to-value (LTV) ratio, and whether a product fee is included. Typically, the margin added to the base rate ranges from 0.15% to 0.75%.
For example, if the base rate is 5%, the mortgage rate might range from 5.15% to 5.75%. As the base rate changes, the mortgage rate will adjust accordingly.
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Impact of Rate Increase on £100,000 Mortgage
When interest rates rise, it directly affects monthly mortgage payments, leading to higher costs for homeowners. Let’s illustrate this with an example:
Scenario:
- Mortgage Amount: £100,000
- Term: 25 years
- Initial Interest Rate: 2%
- New Interest Rate: 2.5%
- Initial Monthly Payment at 2%: Approximately £424.65
- New Monthly Payment at 2.5%: Approximately £449.04
A 0.5% increase in the interest rate on a £100,000 mortgage over 25 years results in an additional £24.39 per month. This increase may seem small, but over a year, it adds up to an extra £292.68 in mortgage payments. Over the life of the mortgage, this results in significantly higher total payments.
This example shows how even a modest rise in interest rates can have a noticeable impact on homeowners’ monthly budgets and long-term financial planning.
How Can Strive Help?
At Strive, we help you navigate the complexities of choosing a tracker mortgage. Our expert advisors analyse market trends and your personal financial situation to determine if a tracker mortgage is the best fit. We provide access to a wide range of competitive mortgage deals and offer ongoing support, ensuring you make informed decisions and stay on track with your financial goals.
Contact us today, and we’ll work hard on your behalf to find you a competitive mortgage.
For more information on mortgages for contractors, please contact a member of the Strive team, by emailing [email protected] or call us on 01273 002697.
