Tracker Mortgage Explained

What is an Tracker Mortgage?

A tracker mortgage means simply that the rate of interest charged on the loan generally tracks the Bank of England base rate for the lifetime of the product you select. These types of mortgages are perhaps the most transparent because you always know the rate of interest you will be paying on any deals that are available in the market.

Benefits of a Tracker Mortgage

The main advantages of this type of mortgage is that it tracks an interest rate normally quoted as x% above base rate as it tracks the BOE rate. When interest rates are falling then your rate will also fall and of course the reverse is true that when interest rates rise then your mortgage rate will also rise and this can be seen as a disadvantage especially when interest rates are low (as the next move is likely to be upwards).

What type of Tracker Mortgages are Available?

Generally you can choose tracker mortgages for most circumstances including for buy to let properties. Most lenders offer these types of loans as they are easy to understand. Some are for a fixed number of years (for example a two year tracker mortgage where the rate is guaranteed for that time) and others can be as a lifetime tracker mortgage so the interest rate is x% above base rate for the life of the mortgage. Of course there are probably going to be arrangement fees as well as early redemption penalies if you want to switch out of the product before the term completes.

Choosing The Right Tracker Mortgage

If you believe this is the right product for your circumstances then there are plenty of options on the market. Look at all the costs that will be incurred as most arrangement fees are at least £1,000 just to get the mortgage and early redemption penalties can be as high as 2% or 3% of the outstanding balance you have to repay as well as the benefit of the lower rate of interest.

These penalities may be for the life of the mortgage or within the first 2 or 3 years of having this type of loan. So although the interest rate may be favourable if you need to pay off your loan or want to switch out to say a fixed rate mortgage if BOE base rate suddenly increases then the costs of switching can be very high.