Published: 29/01/2019

At a glance

  • Tracker mortgages get their name from the fact that they ‘track’ the Bank of England’s Base rate plus a certain extra margin.
  • These are a form of variable rate mortgage – meaning that your payments can rise and fall depending on any interest rate changes.
  • Some providers have a ‘collar rate’ on their tracker mortgages. This restricts how low the interest rates you pay can go.
  • May have a ‘switch & fix’ feature allowing you to change to a fixed mortgage deal if rates go too high.

Tracker mortgages are basically a type of variable rate mortgage. What makes them different from other variable rate mortgages is that they follow – track – movements of another rate. Most commonly, the rate that is tracked is the Bank of England Base Rate.

Tracker rates do not match the rates they track but are at a 'margin' above that rate. Introductory offers tend to have a lower margin, for example Base Rate plus 1.00%. So, with base rate at 0.75%, the rate paid would be 1.75%. Longer-term tracker mortgages would have a larger margin, for example base rate plus 3.5%. Tracker rates can be for an introductory period (typically anything from one year to five years), or you can get a lifetime tracker, which means that you'll be on it for the whole term of your mortgage.

If you're on an introductory tracker rate, your mortgage will usually go onto a standard variable rate (SVR) or another tracker rate (with a higher margin) at the end of the initial term.

Some mortgage lenders also put you onto a tracker rate once you've finished an introductory fixed mortgage deal.

How does a tracker rate mortgage work?

A tracker rate follows another 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).

Some trackers can only go so low…

It's become more common for some mortgage lenders to put a collar rate on their tracker mortgages.

A collar rate basically means that your rate can't go below a certain minimum level.

So, if the rate being tracked goes below the collar rate, your payments won't go down any further.

Mortgage calculator

Our mortgage calculator helps you to see how much your mortgage might cost you each month.

Our how much can I borrow calculator gives you a range of how much a lender might consider lending you under a mortgage. This calculation is only an indication only.

Read our How much can I borrow for a mortgage guide to find out more about what can impact your potential sum of borrowing.

Pros and cons of tracker mortgages

  • If interest rates go down so will your payments.
  • Introductory tracker rates can be among the lowest variable interest rates available.
  • Arrangement fees for tracker mortgages tend to be lower than for fixed rate mortgages.
  • Early repayment charges can be less expensive for tracker mortgages in compared to fixed rates.
  • 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.
  • If the tracker mortgage has a ‘collar rate’ you won’t benefit if rates fall below a certain level.
  • If interest rates go up your payments will go up too.
  • When the introductory rate period ends you go onto another (usually higher) tracker rate or your lender’s SVR. This means that your payments could go up. However, you can remortgage with a different provider or arrange a new mortgage deal with your current lender when this happens.

Moneyfacts tip

Moneyfacts tip Leanne Macardle

Make sure that you check if any ‘collar rates’ apply to your tracker mortgage – if so, find out how low your rates can go and how this will affect your payments.

Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.

couple holding a box

At a glance

  • Tracker mortgages get their name from the fact that they ‘track’ the Bank of England’s Base rate plus a certain extra margin.
  • These are a form of variable rate mortgage – meaning that your payments can rise and fall depending on any interest rate changes.
  • Some providers have a ‘collar rate’ on their tracker mortgages. This restricts how low the interest rates you pay can go.
  • May have a ‘switch & fix’ feature allowing you to change to a fixed mortgage deal if rates go too high.

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