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Tracker fund mortgages could be a godsend

As UK base rates continue to fall, with speculation they will reach as low as 1% next week, many Tracker fund mortgage products have been withdrawn from the market place. However, companies such as Cheltenham and Gloucester, who in 2007 offered a track mortgage which was 1.01% below base rate, will see customers paying as little as 8p in interest next month although in theory the banks should be paying customers as the rate will effectively be negative.

This amazing turnaround has caught many mortgage companies in UK by surprise and sent them scurrying to check their small print. While they have refused point blank to pay customers interest if mortgage rates effectively move below zero (in the Tracker fund mortgage sector) it would appear there is no get out clause if falling base rates push the effective Tracker interest rate below zero.

While mortgage holders will still need to repay the capital on their loan, the removal of interest payments in the short term will take significant pressure of many people. When you consider that historically a Tracker fund mortgage arrangement of 6% for an interest only £150,000 mortgage would have seen the customer paying £750 a month in interest the difference between now and then is enormous. For once it looks as though the UK consumer may "get one over" on the UK banking sector.

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