Tracker Mortgages
A Tracker mortgage (also known as Base Tracker Mortgage) is a mortgage in which the rate of interest paid by the borrower follows movements in the base rate. In a nutshell, each time the Bank of England base rate changes, your interest rate will change too.
You'll get it immediately to help you get the best valuation possible.
We value your privacy and will not share your details
There are three variants of tracker mortgages. There are those that run for a set period at an agreed differential to the base rate (either above or sometimes below it before reverting to the standard variable rate). There are tracker mortgages that track the base rate for the whole life of the loan. And then there are those where the mortgage lender guarantees that the margin between the base rate and the mortgage interest rate will not go beyond a set level.
So, how can a tracker mortgage be beneficial to a borrower? With a standard variable rate mortgage, if the base rate is reduced, not all the lenders will pass on cuts to the borrower. With a tracker mortgage, you are guaranteed that the rate will follow that of the Bank of England's base rate - up and down.
Also, unlike an ordinary standard variable rate mortgage, the mortgage tracker should follow the base rate wherever it goes, maintaining the same differential between the interest rate you pay and the rate set by the Bank of England.
Always check the small print to see whether the same differential will be maintained should the base interest rate drop below a certain level. And also be aware of tracker mortgages that have stipulations as to a minimum rate that you will be required to pay no matter how low the base rate may go.
Of course, interest rates do go up as well as down, so if you have a tracker mortgage and the Bank of England base rate rises, so will your monthly mortgage repayments. But, compared to a standard variable rate mortgage, you will still be better off as the difference between a mortgage tracker rate and the base rate is normally far smaller than the margin between an ordinary variable rate mortgage and the base rate.
As with choosing any mortgage, always check out the small print. Look out for any redemption penalties you would be liable for should you wish to pay your loan off early/switch to another provider. And check that you do not have to compulsorily purchase the lender’s own buildings and/or contents insurance as part of the mortgage tracker deal.
