Cut your mortgage rate to 2.29% - penalty-free!

This mortgage tops the rest at a low rate that's guaranteed to blow your socks off.

I have always been a big fan of lifetime tracker mortgages.

I think these mortgages offer the best of all worlds – a competitive variable rate that you can switch out of at any time, without having to fork out any penalties.

Hold on.... no penalties?

Lifetime tracker mortgages don’t charge ERCs (Early Repayment Charges). All other trackers and fixed rate deals charge these penalties when you want to switch out of your deal early (so during the first two years of a two-year tracker or two-year fixed rate, for example).

This flexibility is really important to prioritise right now, when interest rates are low, but are certain to rise at some point in the future.

In my opinion, you’d be crazy to opt for a bog-standard tracker in this situation. You might benefit in the short term by bagging a low rate, but you’ll be locked into tracking the base rate for at least two years. So when rates begin to rise, your rate will have to follow, like a dog on a leash, tugging your monthly outgoings up and up and up.

The problem is, no one knows when base rates will rise, which is why opting for a fixed rate mortgage may also be a bad idea.

After all, banks aren’t stupid. They’re all making mortgage borrowers pay a premium right now for the security of a fixed rate that protects them against the inevitable rate hikes. That’s why most fixed rates are around 4% to 5%, while you get trackers at around 2% to 3% (depending on how big your deposit/equity stake is).

In other words, if you lock into a fixed rate today, you’ll pay a premium rate every month while the base rate is low – but your rate will seem relatively cheap when the base rate rises. Similarly, if you lock into a tracker right now, you’ll pay a cheap rate every month while the base rate is low – but your rate will become more expensive when the base rate rises.

It’s a gamble, a bet on when interest rates are going to rise. And personally, I don’t like betting.

That’s why I like lifetime trackers.

Lifetime trackers: The best of both worlds strategy

You can take out a lifetime tracker today, and benefit from a low tracker rate while the base rate is low. And the moment the base rate starts to rise (because once it starts rising, it’s likely that the increases will be frequent and gradual), you can immediately switch to the security of a fixed rate at that point and protect yourself from any further hikes.

It’s true that the fixed rates on offer at that point are likely to be higher than those on offer right now. But overall, I think it’s a good compromise. After all, you’re saving money each month the base rate stays low, without having to track the base rate up when it starts to rise.

How to choose a good lifetime tracker mortgage?

The key thing to look at if you want a decent lifetime tracker mortgage is the mortgage booking and exit fees, plus any valuation fees. This is, effectively, the cost of remortgaging.

What is the total sum of all the fees? If you can save yourself this sum over a short period (say a month or two) by cutting your rate, then it’s well worth switching. For example, if by remortgaging you can cut your monthly payments by £300 a month, and the fees come to £500 in total, then it’s probably worth doing. But if you would only save £50 a month by remortgaging or the fees came to £1,000, then you may feel differently.

(You can use our remortgaging calculator to find out how much your monthly payments will be if you switch to a new deal.)

Ask yourself this: how many months would you need the base rate to stay level in order to break even on the fees involved with remortgaging? Because remember, with the strategy I’ve outlined above, you have to be prepared to switch as soon as the base rate starts to rise. It might be years until this happens – or it might be just one month. Would you be prepared to take this risk?

Personally, I think it’s realistic to imagine a scenario where you only stay on your lifetime tracker for about six months to a year. Would you save enough each month to ensure this is worth your while? Or would the peace of mind alone (knowing you can switch at any time without penalties) mean it’s worth it for you?

My favourite lifetime tracker mortgages

The best lifetime trackers around at the moment are, in my opinion, being offered by First Direct.

In fact, I think these deals are so good, I’m thinking of remortgaging to one myself.

What I like about these mortgages is that 1) in total, the mortgage fees come to just £248 and 2) the LTV range is quite wide. So you only need a 15% deposit/equity stake to qualify for the 3.99% rate, but can get a much better rate if you have a 35% deposit/equity stake. In other words, there’s a deal here to suit every borrower (from first-time buyers to long-term homeowners with heaps of equity). And because the fees are so low, it’s worth getting one of these deals even if the reduction in your rate isn’t huge.

For example, if you’re currently languishing on an SVR of 4.99%, and you have a £250,000 mortgage, switch to the 3.99% deal and you’ll save £141 a month. Or, if you have more equity, switch to the 2.29% deal and you’ll save £364 a month!

There is one catch associated with these deals – you need to take out a 1st account  (a First Direct current account) to qualify for them. However, this is easy to do, and if you pay in £1,500 a month and make the 1st account your main current account, First Direct will give you £100 to say thank you. So it’s still a pretty good deal.

Other top lifetime trackers

Of course, First Direct is not the only provider of lifetime mortgage trackers. Here are some other good ones available in the market right now – including one from HSBC that’s totally fee-free (highlighted in bold). Remember, you can discuss any of these deals with one of our award-winning mortgage brokers.

Compare mortgages at lovemoney.com

More: The greatest threat to mortgage holders | The 2.6% mortgage trick

At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free lovemoney.com broker. Call 0800 804 8045 or email mortgages@lovemoney.com for more help.

This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article. 

Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term may revert to the lender's standard variable rate or a tracker rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.

Your home or property may be repossessed if you do not keep up repayments on your mortgage.