Tracker Mortgages

Trackers mortgages are also known as rate tracker mortgages, because essentially, they track the movement of a rate, usually the bank of England base rate.

For example, you could get a tracker mortgage that will always be 0.25% above the UK base rate. So, if the base rate is 5.75%, you will pay 6% interest on your mortgage repayments. If the base rate changes to 6%, your repayments will increase to 6.25%. Of course, it could work in your favour if the base rate lowers. The tracker mortgage benefits from reflecting current economic conditions.

A common misconception is that a standard variable rate mortgage and a tracker rate mortgage are the same. The difference is that a tracker mortgage is linked to a rate (typically the UK base rate), whilst a standard variable rate varies at the discretion of the lender.

Things to remember:

Tracker mortgages can vary, but typically last for 2. They can of course stretch for a longer period. After the expiration of the tracker, your lender will put you on an alternative rate. It’s imperative you know what the rate(s) will be.

It’s important to always be prepared for an increase in payments, as the base rate can increase. Tracker mortgages are often suited to borrowers who are looking for cheap initial payments and can take the risk that their payments could increase at a later date.

As with any loan, it’s important to be aware of all the conditions, especially the ones highlighted in the small print.

Your tracker will be set at a certain rate, for example 0.25% below base rate for 2 years. However, your lender may specify that they reserve the right to review the situation if the base rate falls too low. Or they may specify a minimum rate that you will have to pay if the base rate plunges below expectations. Clauses like that are common, and beat the purpose of having a tracker mortgage. Find a lender that doesn’t have such clauses.

Some lenders attach compulsory insurance and extended early repayment charges to the tracker mortgage policy. The only thing you should have to get from your mortgage provider is your mortgage.

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