Tracker Mortgages

Tracker mortgages are a type of variable rate mortgage that offer borrowers an interest rate that tracks the Bank of England base rate or another external rate for a set period of time. The interest rate on a tracker mortgage is usually set at a fixed margin above the base rate or external rate, such as 1% or 2%. For example, if the Bank of England base rate is 0.5%, and the tracker mortgage has a margin of 1%, the borrower’s initial interest rate would be 1.5%. If the base rate were to increase to 1%, the borrower’s interest rate would increase to 2%.

Conversely, if the base rate were to decrease, the borrower’s interest rate would decrease as well. Tracker mortgages offer borrowers some predictability in their mortgage payments, as changes to the interest rate are based on a publicly available external rate. However, borrowers should still be prepared for potential increases in their monthly mortgage payments. The tracker period is usually offered for a set period of time, such as two or three years, after which the mortgage will usually switch to the lender’s standard variable rate (SVR).

Borrowers should also be aware that there may be early repayment charges or other fees for ending the mortgage early. Tracker mortgages may be suitable for those who are comfortable with some uncertainty in their mortgage payments, and who want a more transparent interest rate that is linked to an external rate. However, borrowers should seek professional financial advice to determine whether a tracker mortgage is appropriate for their individual circumstances.