Tracker mortgages

What is a tracker mortgage?

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A tracker mortgage will usually follow the Bank of England base rate to then set the interest rate you pay on your mortgage.

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

What is a tracker mortgage?

A tracker mortgage is a type of variable mortgage that follows an external interest rate – usually the Bank of England’s base rate – to then set the interest rate on its mortgage deals. Interest rates can be set at a certain percentage above or below the base rate.

So if the external Bank of England base rate goes up, so will the amount of interest you pay on your tracker mortgage deal.

How do tracker mortgages work?

If you have a tracker mortgage, the amount of interest you pay on your mortgage might be the base rate plus or minus a certain percentage. For example, if the interest you pay on your monthly mortgage repayments is set as the base rate plus 1.5%, and the base rate at the time is 0.5%, the amount of interest you need to pay on your monthly repayment will be 2%.

Because these mortgage rates track the base rate, this means the rate you pay can change - just like a standard variable rate mortgage. So if the base rate in the example increased to 1%, the rate you pay would then go up to 2.5%.

Equally, if the base rate fell, so would the rate you pay.

If you are considering a tracker mortgage, it’s important to make sure you could still afford your repayments if they were to increase.

A graph showing an example of a tracker mortgage following the Bank of England base rate at 1.5%

This graph is an example of a tracker mortgage’s interest rates if the deal was set at 1.5% above the Bank of England base rate – tracking from July 2007 to August 2018.

Collar rates

While tracker mortgage rates will normally always follow the rate they are tracking, your lender can apply a collar. This sets a minimum interest rate for your mortgage payments - so even if the base rate drops below that level, the percentage of interest you’re charged won’t drop lower than the collar rate, and your payments won’t drop any lower.

How long do tracker mortgage deals last?

You can find tracker mortgage rates that last for two, three, five, or 10 years. And when the deal comes to an end, you’ll usually be moved to the lender’s standard variable rate – which is often higher.

This is a good time to then look to remortgage to another tracker or a fixed-rate deal, either with the same lender or a new one.

You can also get lifetime tracker mortgages - which track the base rate for the whole mortgage term and won’t revert to the lender’s SVR. 

A graph showing the breakdown of borrowing types for tracker mortgages

70% of consumers looking for a tracker mortgage are remortgaging, according to MoneySuperMarket data January 2016 – July 2018.

What is the difference between a tracker mortgage and a variable mortgage?

A lender can set their own standard variable rate, but a tracker mortgage normally follows the base rate set by the Bank of England – so an external rate.

What are the advantages of a tracker mortgage?

Some advantages of tracker mortgages include:

  • If the Bank of England base rate goes down, so will your mortgage repayments
  • Introductory tracker rates can be relatively low
  • There might be an opportunity to overpay on your mortgage
  • Some providers may let you switch to a fixed-rate mortgage if the base rate goes up - without you having to pay a fee

What are the disadvantages of a tracker mortgage?

Some disadvantages of tracker mortgages can include:

  • If the base rate increases, your mortgage repayments will also increase. So if you prefer to know how much you’ll be paying each month, a tracker mortgage won’t be for you
  • A collar rate can mean that you won’t be able to take advantage of low rates if the base rate dips below a certain point
  • You may have to pay an early repayment charge if you need to get out of your deal early

Comparing tracker mortgage deals

Finding a better deal for your mortgage is simpler when you compare mortgages online at MoneySuperMarket – you just need to give a little information about your borrowing requirements, such as how much you need and over how long, as well as the price of your property.

You’ll then be able to compare various quotes from different providers by their initial monthly cost and interest rate, the overall cost of the mortgage, and whether there are any fees included as part of the deal.

The comparison tool won’t take into account your financial situation or your credit history, so the interest rate deal you’re offered on your tracker mortgage may be different to the quotes you see.

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