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.

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

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.