Tracker mortgages

What is a tracker mortgage?

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Tracker mortgages usually track the Bank of England base rate, and, as a result, your mortgage repayments will change when the base rate moves up or down.

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Before applying for a tracker mortgage, you should therefore assess whether you would be able to afford for your repayments to increase – if you wouldn't be able to, a tracker mortgage is not the best option for you.


Guide to tracker mortgages

Tracker mortgages typically track the Bank of England base rate at a set margin above or below it

So, for example, if the base rate is 0.5% and a tracker deal is advertising a rate of base plus 2.5%, then you’ll end up paying a rate of 3%.

When the base rate changes, your rate will go up or down accordingly, so, if it rises to 1%, then you’ll pay 3.5%, whereas if it falls to 0.25%, you’ll pay 2.75%.

How long do they last for?

Tracker deals are usually available for two, three or five years before you move onto the lender’s standard variable rate. However, you could opt for a lifetime tracker instead, which tracks the base rate throughout the entire term of the mortgage.

Shorter term deals usually have early repayment charges which you will have to pay if you want to get out of your deal early. In comparison, some lifetime trackers allow you to move to a different deal when you want to without penalty, but always read the small print before you sign up so you know exactly where you stand.

Pros and cons of tracker mortgages

When interest rates are very low, one of the advantages of a tracker mortgage is that you could end up paying less than you might have if you’d locked into a fixed rate deal (where your repayments don’t change regardless of what happens to interest rates).

But on the flipside, when interest rates go up, so will your mortgage rate, so you could end up paying more than if you’d gone for a fixed rate mortgage.

Who do tracker mortgages suit?

If you’re comfortable with the idea that your mortgage repayments could go up or down, and are confident that you could afford a rate rise, a tracker mortgage could be the right choice for you. Remember, however, that while your rate might be very low initially, it could end up much higher when rates start to rise.

What are the alternatives to tracker mortgages?

There are several different types of mortgage deal to choose from, so if a tracker isn’t for you, you’re bound to find another type of home loan that's more suitable.

For example, if you want peace of mind that your monthly repayments won’t change over time, a fixed rate mortgage is likely to be your best option. You can typically fix in for two, three or five years, but a few lenders also offer 10-year fixes.

Alternatively, if you don’t mind a variable rate mortgage, but want to be certain that costs won’t exceed a certain level, then you might want to think about a capped mortgage, where rates can move up and down, but there is a cap above which the rate can’t go.

Discounted mortgages are another alternative to tracker mortgages. These are also variable rate mortgages, but offer a discount off a certain interest rate, usually the lender's standard variable rate. The discount is typically for two to five years, although it can last for the whole term of the mortgage. There will generally be an early repayment charge if you pay off the mortgage during the discounted period.

Base rate calculator

You can work out how your mortgage will be affected by base rate changes by using our handy base rate calculator. Click here to try it out.

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