Tracker-rate mortgage

What is a tracker mortgage?

A tracker mortgage is a mortgage whose interest rate will change whenever the Bank of England's base rate is raised or lowered*. What's more, the size of the increase / decrease will match the base rate change exactly (which explains the term 'tracker rate').

Is a tracker mortgage right for me?

Tracker-rate mortgages are particularly attractive to people who think the base rate is on its way down. Get a tracker mortgage at the right time and you can pay less and less as you watch the base rate drop.

Having said that, it's important to remember that the base rate can go up as well as down - which means your monthly repayments could rise, too. So, if you're not sure you could afford the uncertainty that comes with a tracker rate, you might be better off with a fixed-rate mortgage.

If, however, you're prepared to take the risk that the base rate could rise - and you're confident you could cope with a period of higher monthly payments - then a tracker-rate mortgage could be a great way to benefit from periods when the base rate is low. (You can always switch if the rate goes up.)

Benefits of a tracker rate

  • Full benefit of all drops in the base rate
  • Unlikely to come with an early repayment charge

Drawbacks of a tracker rate

  • Monthly payments can go up as well as down with a tracker rate

*There's only one exception to this rule: some tracker-rate mortgages come with a collar (also known as a floor). Whatever happens to the BoE's base rate, the mortgage rate will not fall beneath this point.

Most collars are set at around 3%, so it isn't really an issue unless the base rate falls close to zero.

Return to top

Mortgage advice

Not sure whether a tracker rate is the right way to go? Get the right advice here

Mortgage term - short or long?

Many mortgages last for 25 years, but some run for 15 or 40 - or anywhere in-between.

In general:

  • Choose a shorter repayment period and you'll pay more each month, but less in total (since you won't be paying interest on the loan for as long). It also means you won't have to wait so long before you own the property outright - and stop making mortgage payments altogether!
  • Choose a longer repayment period and your tracker-rate mortgage will cost less each month, but more in total (since it will be accruing interest for longer).

If you're careful, it's possible to get the 'best of both worlds': you can start with a longer repayment term (so your monthly payment are quite low), then sign up to a new tracker mortgage with a shorter repayment term once you can afford it.

Remember: starting with a tracker rate doesn't mean you'll be stuck with a tracker rate for the rest of your mortgage. By the time you own your property, you may have spent some time with a tracker-rate mortgage, a variable-rate mortgage and a fixed-rate mortgage. And since tracker-rate mortgages tend not to come with an early repayment charge, they leave you free to change your mind without financial penalty.

Return to top

Repayment or interest only?

Any kind of mortgage (whether variable, fixed or tracker rate) can be either repayment or interest only.

  • An interest-only tracker mortgage will cost you less per month, as you're paying off just the interest, not the capital (the property's actual cost). If you do this, you'll need to invest or save enough money to buy the property at the end of your tracker mortgage.
  • A repayment mortgage costs more each month, but you'll own the property outright at the end of it, as each of your monthly payments will cover both interest and capital payments.

Return to top

Interested in a tracker rate?

Call us on 0800 195 2913 for free, no-obligation advice.

Return to top

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT. DEBT CONSOLIDATION MAY INCREASE THE AMOUNT TO BE REPAID IN THE LONG TERM. Subject to status. An arrangement fee of 495 is payable on completion. For debt consolidation mortgages the fee is 1.5% of total advance (minimum 1295, maximum 1,695). No fee for returning customers. The actual rate available will depend upon your circumstances. Ask for a personalised illustration. Calls may be recorded.

Company Registration No. 4291279. Consumer Credit Licence No. 512740. Think Mortgages is a trading name of Think Loans & Mortgages Limited. Carlton House, Vere Street, Salford Quays, M50 2GQ. Registered in England and Wales. Authorised and regulated by the Financial Services Authority in respect of regulated mortgage and general insurance contracts. Calls to 0800 numbers from BT landlines are usually free. Calls to other networks may vary and you should check with your network provider for full details of your service.

All About Money Limited © 2013. All rights reserved. 42 Boston Rd, Sleaford, Lincolnshire NG34 7ER.