What is a tracker mortgage?

fa-homebuyers ["Mortgages Explained"]
A tracker mortgage is where the amount of interest you pay goes up or down, depending on the Bank of England Base Rate. The interest rate ‘tracks’ against the Base Rate, so it can change throughout your deal.

How do tracker mortgages work?

Unlike a fixed rate mortgage, where the interest you pay will stay the same for the duration of the deal, a tracker mortgage has a rate that goes up or down.

A tracker interest rate is based on the Bank of England Base Rate, plus a extra percentage agreed with your lender. 

How often can the Base Rate change?

The Bank of England’s monetary policy committee (MPC) meet roughly every six weeks to set the Base Rate. The amount of interest you pay can change relatively often.  

How long does a tracker mortgage last?

Usually, a tracker mortgage will run for a certain term length, such as two or five years. After which it will revert to a lender’s standard variable rate and you can choose to get a new deal.

Should I get a tracker mortgage?

The mortgage deal you pick is completely up to you. Here are a few things to think about:  

Benefits of a tracker mortgage

You might save money – If the Base Rate drops, you can expect your repayments to fall. Some lenders set a floor, or ‘collar’, which means your savings can never drop below a certain rate.
Some deals include a cap – If you’re worried about the impact of rising interest rates on your mortgage repayments, you could shop around for a tracker mortgage that offers a cap. This means your interest payments never exceed a certain limit.
More flexibility – Tracker mortgages may be more flexible if you want to switch to a new deal. You may still need to pay an early repayment charge. Check the terms of your mortgage deal closely before deciding.

Considerations of a tracker mortgage

Your payments could increase – The amount you pay in interest could rise if the Bank of England increases the Base Rate.
Your savings may be limited –  If you select a tracker deal with a ‘collar’ (or ‘floor’), then even if the Base Rate falls, you will pay a minimum amount in interest with each repayment. 
Uncertainty – The Bank of England usually meets eight times a year to discuss if the base rate should rise, fall, or stay the same. The amount you pay in interest can change suddenly. 
The content on this page is for reference and is not financial advice.
For impartial financial advice, try MoneyHelper.