What Is A Tracker Mortgage?

Trackers mortgages, also known as “rate tracker mortgages”, are mortgages that 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 mortgage on a standard variable rate (SVR) and a tracker rate mortgage are the same. They’re not. 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 years before the lender will move the rate onto their own SVR.
  • It’s important to always be prepared for an increase in payments, as the base rate can increase. The Bank of England’s Monetary Policy Committee (MPC) decides the fate of interest rates. They meet up every month and decide what the rates will be in the foreseen future.
  • 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 in my opinion, beats 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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