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Tracker mortgages

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What is a tracker mortgage?

A tracker mortgage is pegged a set amount above the Bank of England base rate and follows it for the duration of the deal. For example, if your tracker is set to “base rate +1%” and the base rate is 1.25%, you pay 2.25%. If the base rate rises to 1.5%, you’ll pay 2.5%.

Unlike a fixed-rate mortgage, there’s a risk that your monthly repayments will rise with a tracker mortgage. On the other hand, if the base rate falls your repayments will decrease too. 

Some tracker mortgages are “collared”. This means your mortgage rate cannot fall below a minimum level, irrespective of how low the base rate goes.

If the base rate goes down, you also have the opportunity to pay off more of your mortgage each month by keeping your repayments the same. That way, you’re taking advantage of the low rates and minimising the total amount of interest you’ll pay overall.

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How do tracker mortgages work?

The Bank of England (BoE) base rate – also known as the bank rate – is the interest rate the BoE charges banks and other lenders when they borrow money. This means it influences the cost of mortgages and how much interest you’re paid on your savings. The BoE changes the base rate depending on the state of the economy with the aim of keeping inflation low.

Tracker mortgages are directly linked to the base rate and so go up or down whenever it does. You usually get a tracker deal for the first two or five years of your mortgage. Unless you remortgage to a new deal after this period, you will move onto your lender’s standard variable rate, which tends to be higher.

You may have to pay early repayment charges to switch mortgages before the end of your deal period.

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What's the difference between a tracker mortgage and a variable-rate mortgage?

Both types have interest rates that can go up or down, but the rates are decided differently.

Tracker mortgage

A tracker mortgage is a type of variable-rate mortgage that follows the Bank of England base rate. Whenever it changes, the interest rate on your repayments changes too. You’ll usually pay the new rate the month after any base rate change.

Most mortgage lenders offer a tracker mortgage as one of their options alongside other types of variable-rate mortgages and fixed rates.

Variable-rate mortgage

A variable-rate mortgage is any mortgage with an interest rate that can change over the period of the deal. 

Lenders have a standard variable rate (SVR) that your rate reverts to at the end of an initial deal, which will be influenced by the base rate but won’t directly follow it. They may also offer discounted variable-rate deals, which directly follow the lender’s SVR at a margin below it.

How often will a tracker mortgage change?

The Bank of England makes decisions on whether to change the base rate eight times a year. The base rate is set by the bank’s monetary policy committee, which meets a week or so before the decision is announced. 

This means a tracker mortgage could change up to eight times a year, but it won’t change at all if the committee decides to keep the base rate the same each time.

How long do tracker mortgage deals last?

With most mortgage deals, you get an introductory period at the beginning of your mortgage where the rate is lower than the lender’s SVR. At the end of this time, your rate reverts to the SVR if you don’t move to a new deal. 

Tracker deals tend to last for two or five years. It’s also possible to get trackers that last for the whole mortgage term. Unlike fixed-rate mortgages, tracker mortgages aren’t generally available for 10 years. 

Advantages of a tracker mortgage

Tracker mortgages have the following benefits:

  • Your repayments will go down when the base rate does

  • They tend to be cheaper than fixed-rate mortgages at the start 

  • You could save money compared to a fixed-rate deal

  • Some tracker deals don’t have early repayment charges

Disadvantages of a tracker mortgage

Tracker mortgages have the following downsides:

  • Your mortgage repayments rise if the base rate does

  • You won’t know for sure how much your mortgage will cost

  • A tracker could end up being more expensive than a fixed rate

  • If your tracker has a “collar” your rate can’t fall below a certain level

Can I switch from my fixed-rate mortgage to a tracker mortgage?

Most lenders will allow you to change your mortgage type, but in many cases, you have to pay early repayment charges to switch before your mortgage deal ends. However, as tracker deals don’t always have early repayment charges, it may be easier to switch from a tracker mortgage to a fixed-rate one during the deal period.

If you’re considering switching from a fixed-rate mortgage to a tracker because tracker rates are lower, bear in mind that your rate could go up so you could end up paying more overall than if you had stuck with the fixed rate. Speak to a mortgage broker for advice on which is the best option for you if you’re unsure what to do.

Claire Flynn - Senior Mortgages Editor at Uswitch
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Tracker mortgages are a type of variable deal linked to the Bank of England base rate. They tend to be slightly cheaper than fixed alternatives initially, but rate changes over the course of your deal may mean you end up paying more. ”

Claire Flynn

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