What is a Tracker Mortgage?
A tracker mortgage is a type of mortgage where the interest rate is linked to a particular base rate which moves up or down in line with this base rate e.g. The Bank of England Base Rate. The tracker rate will be set at a certain percentage above this rate e.g. if set at 2.50% above the BOE Base rate (0.50% as at April 2014) the overall rate would be 3.00%. With this type of mortgage you need to be prepared to pay more on your mortgage repayments if interest rates increase. The tracked rate can be for a set period e.g. 2 years or for the lifetime of the mortgage.
Tracker mortgages are offered by a selection of banks, building societies and specialist lenders who will on the whole be regulated by the Financial Conduct Authority (FCA).
Types of Tracker Mortgage
You can choose different types of tracker mortgage:
Fixed Period Tracker Mortgage - Mortgage companies offer fixed period tracker deals typically on a two year basis although 3,4 and 5 year trackers are available. With this type of tracker mortgage the mortgage company will set the rate above the base rate (which could be the Bank of England Base rate or the mortgage company's own base rate version) e.g. 3% for a set term such as two years, after which time the rate will revert to a variable rate plus the base rate.
Lifetime tracker Mortgage - With a lifetime tracker the mortgage company sets the rate which you pay plus the base rate from outset and this remains constant for the duration of the mortgage term. If you believe you might move house before the end of the mortgage term it is worth looking for a deal where you transfer your existing mortgage to your new property.