In Brief

Take out a tracker mortgage and what you pay will depend on what happens to the Bank of England base rate. If the base rate rises so will your interest rate and, in turn, your monthly payments. But, as long as the base rate stays low you’ll benefit from a very cheap mortgage rate.

Find out everything you need to know to about a tracker mortgage with this guide.

In this guide…

How does a tracker affect my repayments?

If you get a tracker mortgage your monthly repayments will rise and fall depending on what the Bank of England base rate does. If the base rate rises so will your interest rate, making your payments immediately higher.

Who should get one?

Taking out a mortgage is all about forming an opinion about interest rates and then taking a calculated risk on what you think might happen in the future. No-one has a crystal ball to tell them exactly what will happen to interest rates but experts can make educated guesses. You can find out the very latest rate predictions from our panel of experts here.

If you believe interest rates aren’t going to rocket, and you could afford it if they did start to rise then a tracker rate mortgage is for you. But, if your budget is tight and you don’t want the worry of rising interest rates the security offered by a fixed-rate mortgage might be better.

How long should I track for?

Tracker mortgage deals typically run for two to five years, or the entire term of the mortgage if it is a lifetime tracker. How long a deal to go for comes down to two things:

  • What do you think is going to happen to interest rates? If you think they aren’t going to move substantially for three years – go for a three year deal.
  • How long are you going to live there? If you know you are going to move on in two years time then don’t lock into a longer deal – you’ll be penalised if you want to exit early with most mortgages.

What additional fees will I pay?

  • Arrangement fees
    This is the charge levied by the lender for setting up your mortgage. They have been on the rise of late and can now be as much as £2,000. You don’t have to pay that upfront, you can add it to your borrowing, but you’ll then pay interest on it.High arrangement fees aren’t always a dealbreaker. Many low-rate deals carry a high arrangement fee, so if you have a large mortgage you could save money by paying more upfront in return for a much lower interest rate.
  • Early redemption charges
    If you want to leave your deal early many lenders will penalise you. The penalty can by calculated in a variety of ways:

    • A percentage of the original loan
    • A percentage of the balance still owed
    • A percentage of the amount you’ve already paid
    • A number of months’ interest
    • A fixed fee


    You’ll trigger a penalty if you pay off your mortgage entirely and, sometimes, if you try to overpay.

  • Exit fee
    Some lenders will charge you to close a mortgage once you’ve paid off your debt. It costs lenders around £50 to sort out the paperwork to close a mortgage but, despite the regulator stating that lenders must not profit from exit fees, many charge as much as £200. If you are being charged a fortune complain – first to your lender and if that doesn’t work to the Financial Ombudsman Service.

Warning – Don’t get caught out when your rate ends

Although you may be borrowing money over a 25-year period, unless you went for a lifetime tracker, your special interest rate deal will eventually run out. When it does, in two to five years depending on your deal, you’ll automatically be switched over to the lenders standard variable rate (SVR).

In most cases this rate will be significantly higher than the tracker rate you were on. So, don’t be one of the millions of people wasting thousands in unnecessary interest payments – make sure you switch to a new deal. Start looking around three months before your deal ends to ensure you have enough time to switch before the SVR kicks in.

The Golden Rule of tracker mortgages

  • Be vigilant: Keep an eye on interest rates. You may have signed up for a five year deal but if rates start to move against you it can end up being worth paying the early repayment fees in order to escape to a cheaper fixed deal. You can check what interest rates are doing, and what they are likely to do with this nifty tool

Pros

  • Low rates
    Tracker mortgages typically have the lowest rates on the market compared to all other mortgage types.
  • Benefit from rate cuts
    With a tracker mortgage, you get direct benefit from any rate cut, so if the base rate drops your rate goes down too, bringing down your monthly repayments as a result.
  • Potential savings
    If your rate falls but you keep paying the same amount you could shave years off your mortgage and thousands off your overall interest bill as you’ll be overpaying your mortgage without paying a penny more.

Cons

  • Risky
    If interest rates rise you could end up forking out a lot more each month than you anticipated.
  • Set up fees
    The lowest trackers usually come with higher arrangement or mortgage set up fees

FAQs

  • What does Mortgage APR mean?
    APR stands for annual percentage rate, which is the interest rate for a whole year. It uses a standardised measure designed to help you compare the cost of different mortgage deals. It is usually higher than the headline or initial rate because it takes into account the interest charged, the length of the mortgage term and any arrangement fee. But it excludes other fees such as early repayment charges.
  • How do you decide what mortgages you include on your tables?
    We only choose mortgages according to their merits. Whether we are paid by the lender to promote them or not does not influence how they are ranked on our tables. Mortgages are ranked by the most appropriate variable – the headline or introductory interest rate they charge.
  • What happens to my mortgage if I move house
    Most mortgages are portable, meaning you can move your present loan onto your new property but check to ensure this is the case. You don’t have to get a new fixed or variable rate when you move house but a charge may apply depending on your deal.
  • What happens if rates rise and I can’t afford my repayments?
    If you find yourself in a position where you can’t afford your monthly repayments, don’t ignore the problem and hope your lender won’t notice. Your home could be repossessed so it’s vital to take immediate action as the earlier the issue is addressed the easier it will be to help you. Contact your lender to discuss your options or get free and independent money advice from charities such as Citizens Advice, National Debtline or Shelter which can help you formulate a budget and debt repayment plan.