What is a tracker mortgage?

Unlike a fixed rate mortgage, your repayments on a tracker mortgage can change month to month. The amount you pay is based on “tracking” another interest rate, meaning that if this rate goes up or down over the course of a month, you will pay more or less interest. Most tracker mortgages track the Bank of England’s base rate, with a rate that’s usually a fixed percentage above this. However, in some cases, a tracker mortgage can also track a variable rate set by the mortgage provider.

If you have a tracker mortgage that tracks the Bank of England base rate, your repayments could potentially change as many as eight times a year, as this is the number of times the BoE’s committee meets to decide on interest rate changes (excluding additional emergency meetings).

Tracker mortgages tend to be popular when interest rates are low or predicted to fall, as this means that your mortgage repayments could reduce over time. However, most tracker mortgages come with a ‘collar’ which is a minimum rate below which they cannot drop. A few tracker mortgages come with a ‘cap’ as well that’s essentially a maximum rate, but these aren’t common.

The rate you get from a tracker mortgage will not be the exact base rate – generally, a fixed percentage is added on top. For example, if your tracker mortgage rate is the BoE base rate plus 0.25% and the base rate is 4%, you will pay 4.25% interest that month. If the base rate increases to 4.5% the following month, you will pay 4.75% interest, and so on.

A tracker mortgage may run for a certain time period, or it’s possible to get a lifetime tracker. The former, like a fixed-rate deal, will last usually between two and five years – after which you will be moved onto your lender’s Standard Variable Rate (SVR), which is typically much higher. A lifetime tracker, on the other hand, will last as long as you have your mortgage.