Base Rate Tracker
A tracker rate follows the Bank of England Base Rate. It can track below the rate it is following, but more commonly it tracks at a percentage above it.
As the rate is variable, you benefit from lower payments when the rate is low, but will suffer from higher payments if the rate being tracked goes up.
Introductory tracker rates can be among the very lowest mortgage interest rates available. However, like all variable rates, they can go up as well as down. Also, most introductory tracker rates will most likely have an Early Repayment Charge if you remortgage or repay the mortgage during the introductory period. If you’re on a lifetime tracker mortgage, there will sometimes be an Early Repayment Charge for a period after you take it out.
Most tracker rate mortgages will let you make overpayments without charging an Early Repayment Charge – usually you’re allowed to overpay up to 10% of the outstanding mortgage balance per year.
If you’ve come onto a tracker rate after being on an introductory fixed or tracker deal, there aren’t normally any Early Repayment Charges if you want to overpay, remortgage or pay off the mortgage early (although check with your lender prior to making any decision).
Advantages and Disadvantages
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If interest rates go down, so will your payments |  |
If the tracker mortgage has a collar rate, you won’t benefit if rates fall below a certain level |
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Introductory tracker rates can be among the lowest variable interest rates you can get | |
If interest rates go up, your payments will go up. This can substantially add to your monthly outgoings |
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Arrangement fees for tracker mortgages tend to be lower than for fixed rates | |
If you want to repay your mortgage early, or remortgage during the initial period, you may have to pay an Early Repayment Charge |
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Early Repayment Charges can be less expensive for tracker mortgages in comparison to fixed rates | |
When the introductory rate period ends, you’ll go onto another (usually higher) tracker rate or your lender’s Standard Variable Rate. Depending on the interest rate climate, this could mean that your payments suddenly make a jump (at this point you can still remortgage to a different lender, or arrange a new mortgage deal with your current lender to save money) |
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Some mortgage lenders offer a ‘switch & fix’ feature, which means you can change to one of their fixed mortgages if rates go up, without paying an Early Repayment Charge |