Tracker mortgages are one of the many types of mortgage product on the market. This section explains what tracker mortgages are, how they can be a useful product and the advantages and disadvantages of tracker mortgages.
A tracker mortgage is a type of mortgage loan that follows the Bank of England base interest rate. A tracker mortgage, or base rate tracker mortgage, is a variable rate loan that changes rates depending on the level of interest rates set.
Generally, but not always, tracker mortgages are set higher than the Bank of England base rate but lower than lender standard variable rates. A tracker mortgage is anchored to a prevailing rate, usually the Bank of England Base Rate, and is set to cost a percentage, or fraction of a percentage, more than this rate.
A tracker mortgage loan is directly linked to an interest rate, and for a specified period it will cost a set percentage amount higher than this rate. For instance, if the tracker mortgage is anchored to the base rate at 1 per cent above, and the base rate is set to 5 per cent, the rate you have to pay will be 6 per cent.
Tracker mortgages are so called because they are anchored to the rate, and 'track' changes in base rate. Therefore, if base rate climbs by 1 per cent, the pay rate also increases by 1 per cent. Similarly, in a climate of falling interest rates, borrowers can enjoy reduced mortgage repayments.
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If your tracker mortgage is anchored to Bank of England base rate, you will experience a revision or maintenance of interest rates once every month. The monetary policy committee studies rates of inflation and weighs up a number of economic factors to decide on whether to increase, decrease or maintain interest rates.
A number of different rate tracker mortgages are on the UK market, including two-year tracker mortgages, five-year tracker mortgages, ten-year tracker mortgages and mortgages that track a rate for the life of your loan. The application fees, product and valuation fees, and flexibility of the loan will depend on the lender and your circumstances.
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