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Tracker mortgages

Get to grips with the pros and cons of tracker mortgages and work out whether they're the right type for you. 

In this article
What is a tracker mortgage? Pros of tracker mortgages Cons of tracker mortgages

What is a tracker mortgage?

A tracker mortgage is a type of variable rate mortgage. The interest rate tracks the Bank of England base rate at a set margin (for example, 1%) above or below it.

Once your tracker deal comes to an end, you're likely to be automatically transferred onto your lender's standard variable rate (SVR). Typically, this will have a higher rate of interest.

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Your home may be repossessed if you do not keep up your mortgage repayments.


Pros of tracker mortgages

  • In certain economic circumstances, borrowers can secure tracker mortgage deals with very low rates of interest. For example, with the current base rate of 0.5%, a +1% tracker mortgage would charge a rate of just 1.5% interest.
  • While your tracker mortgage rate is low, you can take the opportunity to overpay on your mortgage. This will either reduce the total length of time it will take you to pay off your mortgage or mean that you can make smaller subsequent monthly payments. Either of these options will mean that you pay less interest in total. Many lenders will now allow you to overpay on a tracker mortgage without incurring any financial penalties.
  • In addition, your rate is not dependent on your lender's SVR, just changes in the base rate.

Cons of tracker mortgages

  • On the other hand, as a variable deal a tracker mortgage will not provide total rate security: if the base rate changes, so too will the interest rate you pay.
  • So, if you need to know exactly how much your monthly mortgage repayment will be each month, a tracker mortgage might not be the best option for you, and you could be better off considering a fixed-rate mortgage instead.
  • If you want to leave a tracker mortgage deal before the end of the set term, you're also likely to be charged an early repayment fee.

Correct as of date of publication.



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