A Tracker Mortgage is a type of variable rate mortgage which tracks the Bank of England base rate. If you opt for a Tracker Mortgage, your rate of interest and monthly payments would be impacted, if the Bank of England base rate were to increase/decrease. An increase in the base rate would mean higher monthly mortgage payments. A decrease in the base rate would mean lower monthly mortgage payments.
How do they work?
During a set period, the mortgage interest rate tracks the Bank of England’s base rate. The interest rate is expressed as base rate + x%. The monthly mortgage repayments change every time the Bank of England increase/decrease its base rate. For example; your tracker mortgage could be tracking the Bank of England’s Base Rate at a margin of +0.5% – so, if the base rate is 3.5%, then the rate of interest you would pay is 4%.
Advantages: You benefit immediately from any reduction in the base of interest by the Bank of England. Usually, repayments are lower than a Standard Variable Rate (SVR) mortgage. There are usually no penalties if you redeem the mortgage early – often called early repayment charges.
Disadvantages: You have no certainty over monthly repayments. You suffer immediately from any increase in the base of interest by the Bank of England.
It is important to make sure you can afford your monthly payments if they do suddenly increase.
What’s the difference between a tracker mortgage and a variable mortgage?
If you have opted for a variable rate mortgage, this is usually set by the lender at their own rate of interest. However, a tracker follows the Bank of England base rate, which lenders have nothing to do with.
What’s the difference between a tracker mortgage and a fixed rate mortgage?
A fixed rate mortgage means that your monthly payments don’t change every month. So, whether interest rates go up or down, your monthly payments will stay the same.
For example; if you select a 5-year fixed rate, your payments will stay exactly the same throughout that 5-year period.
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PLEASE NOTE: Article written 18th January 2023. Information contained within this article is likely to change and therefore should not be relied upon or form part of any form of decision making without seeking professional advice. *
YOUR HOME MAY BE REPOSSESSED IF YOU DON’T KEEP UP REPAYMENTS ON YOUR MORTGAGE
Any guidance and/or advice contained within this document is subject to the UK regulatory regime and is therefore restricted to consumers based in the UK. Any technical or regulatory information contained within this document was correct at the time of producing it but as it may be subject to change it should not be exclusively relied upon when making a financial decision. The Financial Conduct Authority does not regulate advice on Buy to Let mortgages.
Article written: January 2023 180123 MZ000264
