What is a Tracker Mortgage?
With a tracker mortgage, your interest rate is set to a particular margin above or below the Bank of England Base Rate. As that rate fluctuates up and down, your interest rate ‘tracks’ it and moves in-line. Currently, the Bank of England Base Rate is at an all time low and has been for around 6 years.
There are some great tracker deals available in the UK at present due to the low rates, however, if the Bank of England base rate goes up at anytime, any tracker mortgage rates will also go up. It is a good idea,therefore, to look at what is happening in the wider economy and speak with a mortgage adviser before you decide whether this type of mortgage is for you.
How does a Tracker Mortgage differ to other Variable Mortgages?
Although a tracker mortgage is a type of variable mortgage, it is different because it tracks the Bank of England Base Rate specifically, whereas, other variable mortgages are usually set at the lender’s own Standard Variable Rate and are, therefore, potentially more volatile.
See our full guide for an overview of other variable mortgages available.
What is the Typical Lifetime of a Tracker Mortgage?
Tracker mortgages can either be for an introductory period (often 1 – 5 years) or they can be offered for a ‘lifetime’ period. A lifetime tracker mortgage remains in place for the full term of your mortgage (for example 25 years) or until you decide to close it down (for example by remortgaging to a new deal).
Lifetime tracker mortgages typically have a higher overall rate than an standard tracker mortgage so you have to weigh up the pros and cons before deciding. When an introductory tracker rate comes to the end of its period, it will usually move onto the lender’s Standard Variable Rate.
What are the Advantages of a Tracker Mortgage?
- If the Bank of England base rate falls, so will your mortgage repayments (unless a minimum interest rate was set and has been reached)
- If your tracker mortgage does go down, you could have the opportunity to pay more of your mortgage off each month, minimising your total debt and payable interest. See our overpayment guide for more information.
- Some tracker mortgages are capped to ensure your mortgage rate can’t rise above a set level offering you some protection.
- Introductory tracker rates tend to be low and other mortgage fees such as arrangement fees and early repayment fees are also usually lower for tracker mortgages than for fixed mortgages (though not always!).
What are the Disadvantages of Tracker Mortgages?
- If interest rates go up, your monthly mortgage repayments will go up.
- If you take an introductory offer, your mortgage repayments could be significantly higher when the introductory period ends and you need to move onto a new mortgage.
- If your tracker mortgage has a collar, this means you wont benefit if the base interest rates falls below that rate.
Final thoughts
Tracker mortgages can offer some of the best interest rates on the market but you need to be sure you will be able to afford your monthly repayments should interest rates go up. Be aware of political and economic activity happening in the UK and how it can effect this type of mortgage.
For more advice on tracker mortgages or anything you have read here, contact one of our advisers for free!
