Tracker rates can be easier to predict than other variable rate mortgages, as they follow an external financial indicator, normally the base rate. If you think the base rate is likely to fall in the near future, you may benefit from lower payments during your deal, helping to maximise your savings. But you should always be prepared for the alternative - if rates rise, make sure you can afford the payments.
What are the pros and cons of a tracker mortgage?
They often have cheaper interest rates at the beginning of the deal compared to fixed rate deals
There's more certainty than other variable rates due to the rate following an external indicator
If the financial indicator falls, you’ll benefit from lower repayments
Some lenders may allow unlimited overpayments - especially if it’s a lifetime deal
Some lenders might allow you to switch to a fixed-rate mortgage for free if the base rate rises a lot
If you can find a deal with a cap, you’ll benefit from knowing your interest won’t rise beyond a certain level
They can change 8 times or more per year, meaning your repayments could become too expensive
You have to be prepared in case your rate increases, so they're harder to budget for than fixed-rate deals
You may have to pay ERCs to leave a deal before it ends
If the deal has a floor, your interest rate can't fall below a certain level, so you may not benefit when the base rate falls below a certain level
Need more help?
Also known as a ceiling, a cap is rare to find on a tracker, but can be invaluable. It’s the exact opposite of a floor (or collar). Your interest rate can never rise above the cap, even if the financial indicator does.
So, if you have a deal set at 2% above the base rate, but capped at 5%, even if the base rate rose above 5%, you wouldn’t pay more than that.
Most tracker deals have a set length, meaning there are likely to be early repayment charges if you leave before the deal term ends.
Some lenders may let you switch to one of their fixed-rate products without paying fees if your tracker rate suddenly increased by a lot. this is not common though, most people will end up paying ercs.
There are no specific restrictions on the type of borrower that can use a tracker mortgage. If you meet the lender's criteria, you can use one as a first-time buyer - but make sure you can afford any potential increases in repayments.
Yes, so long as all applicants meet the criteria, you can take out a tracker mortgage with as many applicants as the lender allows. Most joint mortgages are capped at 2 applicants but some allow up to 4.
Some trackers are portable - meaning you can take them with you when you move. This is laid out in your terms and conditions, so if it’s important to you, be sure to ask before you commit.
Keep in mind that porting your mortgage to a new property is not always the cheapest option and you may get a more competitive mortgage from another lender - especially if you’re looking to increase your borrowing.
What our expert says
Learn about different mortgage types
are a type of loan used to buy a property. The mortgage is secured against the value of the property.
are designed to help give you that first step on the housing ladder.
are for when your current mortgage deal comes to an end.
are where you only pay back the interest each month. When your mortgage term comes to an end, you still owe exactly what you borrowed at the start.
aren't that different from a regular mortgage. But there are some important differences.
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YOU SHOULD THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME/PROPERTY. YOUR HOME/PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
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