What is a tracker mortgage?

Tracker rate mortgages can be a flexible option. Learn about how tracker rates work and whether a tracker mortgage is a good choice.

What is a tracker mortgage?

A tracker mortgage is a kind of variable rate mortgage that changes according to a base rate; this is generally the Bank of England base rate.

This means that a tracker mortgage’s interest can fluctuate depending on whether the base rate goes up or down.

How does a tracker mortgage work?

The interest your lender charges on a tracker mortgage is the base rate plus or minus a certain percentage.

Here’s an example: if the current base is 4%* and a lender tracks at +1%, this means your interest rate will be 5%. 

If the base rate rises to 4.5%, then your tracker rate will increase in line with this, by 0.5%. 

Your tracker mortgage could include a minimum interest rate or 'collar'. The interest rate will never fall below this so the lender will always make some profit. 

Some lenders will also have a cap to restrict the maximum rate.

* Correct as of February 2023

Some tracker mortgages have no Early Repayment Charges (ERCs). This allows you to make larger overpayments or repay the mortgage in full without being charged a fee. 

Check with your lender to find out whether your tracker mortgage has an early repayment charge.

Some tracker mortgages have a ‘collar’, which is the lowest limit of interest you will pay for your mortgage. This means your mortgage interest rate won’t fall lower than the collar, even if the base rate does.

Not every tracker mortgage will have a collar. Check the small print of your mortgage deal to see whether a collar is in place.

A tracker mortgage’s cap is the opposite of the collar. This means there is an upper limit to what amount of interest you will pay, and even if the base rate goes above this, your mortgage rate will not.

Is a tracker mortgage a good idea?

Like any mortgage, trackers come with their pros and cons. Some advantages of a tracker mortgage are:

  • They can offer more flexibility because most tracker mortgages do not have early repayment charges (ERCs). This means you have the option of getting out of your tracker deal before the end of your agreed term, without paying a hefty fee.

  • They can be cheaper than fixed rates as tracker mortgage introductory rates can often be cheaper than a lot of other mortgages

  • They are low when the base rate is because they track a base rate (either the Bank of England or Libor)

However, a tracker mortgage might not be the best choice for you if you:

  • Need certainty about how much you will be paying each month as a tracker rate could go up or down as soon as the base rate changes

  • Are worried that the base rate could increase and leave you with a mortgage payment you cannot budget for or afford

How long does a tracker mortgage last?

2-year tracker mortgage 

Products usually last 2 or 5 years, but you can also get 3-year, 10-year and ‘lifetime trackers’. 

A 2-year tracker means you’ll be tied into a mortgage deal that will track the base rate for 2 years. After this period you will likely wish to remortgage to a new deal.

Lifetime tracker mortgage

Lifetime tracker mortgages track the base rate for the lifetime of the mortgage, which is generally about 25 years. 

This type of mortgage is better for people who do not mind the uncertainty of what their mortgage payment will be month on month.

Tracker or fixed mortgage?

Both tracker and fixed-rate mortgages are popular choices for home buyers, but they are very different.

Interest rates: The most significant difference between trackers and fixed-rate mortgages is how the interest works. 

Fixed rates are set and remain the same for the entire fixed period (whether 2-year, 5-yea or 10) whereas a tracker changes depending on the base rate.

Different introductory rates: Tracker mortgage introductory rates tend to be cheaper than those for fixed-rate mortgages because fixed rates offer more security. 

Early repayment charges (ERCs):  Tracker mortgages often have lower or even no Early Repayment Charges (ERCs), which gives you better flexibility if you want to change deals. Fixed-rate ERCs tend to be quite expensive.

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