What is a tracker mortgage?

Find out how a tracker mortgage works and how they compare with a fixed rate mortgage.

The full name of a tracker mortgage is a variable rate tracker mortgage. This is a type of mortgage where the interest rate you pay is linked to the Bank of England’s base rate.

The interest rate on a tracker mortgage changes with the Bank of England base rate, which affects how much your repayments will be each month.

This kind of mortgage breaks free from traditional fixed rate mortgages, which have set rates that stay the same throughout your deal.

With a tracker mortgage, repayments can go up or down each month. If the Bank of England base rate is low, the amount you pay could be less, as you won’t have as much interest to pay on top of your mortgage repayments. But if they rise, you might have to pay more each month. 

How does a tracker mortgage work?

A tracker mortgage is linked to the Bank of England base rate. This can change up to eight times a year, though it’s unlikely to happen that often.

The interest rate you pay will be the Bank of England base rate plus a certain percentage. This will depend on the type of deal you get. 

Introductory rate

Usually offered to new customers for the first one to five years.

Lifetime rate

A deal you can choose to stay on track with the Bank of England rate for your whole mortgage term.

How does this work?

If the Bank of England base rate was set at 0.25%, your interest rates would likely look like this: 

Introductory offer – 0.25% plus 1% would give you a repayment rate of 1.25%.

Long-term tracker – 0.25% plus 3.5% would give you a repayment rate of 3.75%. 

What does this mean for my monthly repayments?

When the Bank of England base rate falls, so does the interest you’ll pay on your mortgage. This means lower repayments each month, which could save you money and free up more of your budget.

On the other hand, if the base rate rises, your mortgage interest rate will too. This could mean your monthly payments go up. Plus, the extra money you pay would only cover the interest rate rise and wouldn’t clear more of your mortgage.

It’s also worth knowing that many tracker mortgage deals are equipped with what’s known as a ‘collar’. Lenders will add these to stop your repayments from going too low, even if the base rate drops below a certain percentage. 

Can I overpay or repay my tracker mortgage?

You can, but it pays to give it some thought before doing so. If you’re still in your introductory period, you’ll likely have to pay an early repayment charge. This is also the case if you’re on a lifetime tracker.

It’s best to check the terms and conditions with your mortgage provider before making any overpayments. 

Pros and cons of a tracker mortgage

Tracker mortgages can give you a cheaper rate than fixed deals. However, your repayments are ultimately at the mercy of the Bank of England base rate.

Here are the pros and cons of choosing a tracker mortgage. 

Advantages of a tracker mortgage

  • When base rates are low, payments will go down – saving you money each month.
  • Introductory rates are often some of the cheapest mortgage deals available.
  • If the mortgage ‘collar’ is set at a low enough interest rate, base rate decreases will help you save more.

Disadvantages of a tracker mortgage

  • Payments can go up without warning, so you need to monitor them carefully, they can also be capped at a certain level too.
  • Introductory rates are usually only available for the first one to five years, after which you’ll pay a higher rate.
  • ‘Collars’ can restrict the additional savings you make when the base rate drops. 

The content on this page is for reference and does not constitute financial advice. For impartial financial advice, we recommend government bodies like MoneyHelper.

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Mortgage essentials
First Time Buyers
Mortgage deposits explained
What is a repayment mortgage?

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