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Tracker mortgages are a type of mortgage where the interest rate you pay is linked to an external interest rate, typically the Bank of England base rate.
If the base rate changes, your mortgage interest rate will usually go up or down by the same amount. This could make your monthly mortgage payments change, which might be good if rates have fallen, but could also mean that you have to pay more if they rise.
If you're thinking of getting a tracker mortgage, it's important to compare different deals to make sure you're getting the best deal for you. At Echo Finance, we offer a range of tracker mortgages from across the entire lending market. To find out more, please get in touch with one of our team today.
How do tracker mortgages work?
A tracker mortgage is a type of variable rate mortgage, which means that the interest rate you pay on your mortgage can go up or down in line with changes to the Bank of England's base rate.
With a tracker mortgage, your mortgage interest rate will be set at a certain percentage above (or below) the base rate for an agreed period of time. For example, you might have a tracker mortgage with an interest rate of 2% above the base rate for five years.
If the base rate changes during that five-year period, your mortgage interest rate will also change by the same amount. So, if the base rate rises by 1%, your mortgage interest rate would rise to 3%.
What are the benefits of a tracker mortgage?
Tracker mortgages can be a good option if you're comfortable with your monthly mortgage payment going up and down in line with interest rate changes. As a variable mortgage, your mortgage payments can go up as well as down, which means you need to be prepared for this.
If interest rates fall, you'll benefit from lower mortgage payments straight away.
There are a few potential benefits of tracker mortgages, which include:
- Tracker mortgages can also offer some great value deals, as lenders tend to price them below fixed-rate deals. This means you could get a lower mortgage interest rate than you would with a fixed-rate mortgage.
- You could benefit from lower interest rates if the base rate falls.
- Tracker mortgages can offer more transparency than some other types of mortgages, as you'll always know exactly how much your interest rate will be.
- They can offer greater flexibility than fixed-rate mortgages, as you can usually switch to another type of mortgage if you want to.
What are the risks with a tracker mortgage?
Of course, there are also some risks to be aware of with a tracker mortgage. These include:
- You could end up paying more interest if interest rates rise.
- Your monthly payments could go up or down, which could make budgeting difficult.
What is the difference between a tracker mortgage and a fixed-rate mortgage?
A tracker mortgage is a type of variable rate mortgage, which means that the interest rate you pay can go up or down over time. Tracker mortgages are linked to an external interest rate, such as the Bank of England base rate.
A fixed-rate mortgage is a type of mortgage where the interest rate you pay is set at a fixed rate for an agreed period of time, typically two, three or five years. This means that your monthly payments will stay the same for that period, regardless of any changes to external interest rates.
So, the main difference between tracker and fixed-rate mortgages is that with a tracker mortgage your payments can go up or down if interest rates change, while with a fixed-rate mortgage your payments will stay the same for the agreed period of time.
If you're not sure which type of mortgage is right for you, our team at Echo Finance can help. We offer a range of tracker and fixed-rate mortgages from across the entire lending market, so we're sure to be able to find a deal that's perfect for your needs. Get in touch with us today to find out more.
What rates do tracker mortgages track?
Tracker mortgages are usually linked to either the Bank of England base rate, or s, sometimes, the London Interbank Offered Rate (LIBOR).
The Bank of England base rate is the interest rate set by the Bank of England's Monetary Policy Committee. This rate is used as a benchmark by banks and building societies when setting their own mortgage rates.
LIBOR is the average interest rate that banks charge each other for borrowing money. It's used as a benchmark by some banks and building societies when setting their mortgage rates.
Tracker mortgages can also be linked to other external interest rates, but this is less common. If you're not sure which interest rate your tracker mortgage is linked to, you should check with your lender.
What happens to my tracker mortgage if the Bank of England's Base Rate changes?
If you have a tracker mortgage that's linked to the Bank of England base rate, then your interest rate will usually go up or down by the same amount. So, if the base rate falls by 0.25%, your interest rate would fall by 0.25%. Similarly, if the base rate rises by 0.5%, your interest rate would rise by 0.5%.
It's important to remember that tracker mortgages are variable rate mortgages, which means that your payments could go up as well as down if interest rates change. If you're not sure you can afford this type of mortgage, you might want to consider a fixed-rate mortgage instead.
How often do tracker rates change?
Tracker rates can change typically within 30 days of a change in the external interest rate that they're linked to. So, if the Bank of England base rate changes, your tracker mortgage interest rate would usually change within 30 days.
How long does a tracker mortgage last?
The introductory period on a tracker mortgage is typically two, three or five years. Once this period is up, you will usually be switched to the lender's standard variable rate by default, but you will be able to remortgage at this point.
There are Lifetime Tracker mortgages available, which track the Bank of England base rate for the entire term of the mortgage. However, these are less common and usually have higher interest rates than other tracker mortgages.
Can I get a tracker mortgage with a bad credit score?
It's possible to get a tracker mortgage with a bad credit score, but it will likely come with a higher interest rate. This is because lenders perceive borrowers with bad credit scores as being higher risk, so they charge higher rates to offset this risk.
Are there early repayment charges with a tracker mortgage?
Most tracker mortgages come with early repayment charges (ERCs), which means you'll have to pay a fee if you want to repay your mortgage early.
You'll typically be liable for an Early Repayment Charge if you repay all or some of your mortgage within the introductory period, however, you may be able to overpay by up to 10% of the original loan amount without incurring a fee. If you're on a Lifetime Tracker mortgage, you may still be liable for an Early Repayment Charge for an initial set period.
The size of the fee will depend on your lender, but it's typically between 2% and 5% of your mortgage balance.
The amount you'll have to pay in early repayment charges will depend on your mortgage lender and the terms of your mortgage deal. It's important to check the small print of your mortgage agreement before you apply so that you're aware of any charges you might have to pay.
Speak to an expert
If you're thinking of taking out a tracker mortgage, or if you have any questions about how they work, we recommend speaking to a qualified mortgage broker. They'll be able to give you impartial advice on the best mortgage deal for your individual circumstances.
At Echo Finance, we've helped countless people find the right mortgage for their needs, so please get in touch if you need our help.
We're passionate about helping people find the right mortgage for their individual circumstances. We have a team of qualified mortgage brokers who are experts in the field, and we'll be happy to answer any questions you have. Get in touch today to speak to one of our team.
Find your local adviser
Frequently Asked Questions
Below you will find the answers to the questions we hear most often from Echo Finance customers:
A mortgage broker, or a mortgage advisor, is an intermediary who acts as a conduit between an aspiring borrower and a lender. It is their job to provide the mortgage applicant with impartial advice, help them choose the right product and arrange the deal with the lender.
Brokers provide services including advice on which type of mortgage to choose, providing access to exclusive rates through their lender contacts, and application support. Some can offer advice on all areas of the mortgage market, while others specialise in niche fields such as buy-to-let, bad credit, commercial finance, first-time buyers or self-employed borrowers.
People choose to apply for their mortgage through a broker because it can boost their chances of finding the right deal, while saving time and money in the long run.
- Residential mortgages: Everything from fixed-rate to tracker mortgages for first-time buyers, homemovers and remortgage borrowers
- Specialist mortgages: For borrowers who fall outside of standard lending criteria, including people with bad credit, self-employed professionals and more
- Later-life lending: Including advice on equity release, mortgages for pensioners and retirement interest only (RIO) mortgages
- Bridging & Commercial: We have specialist advisors on hand for commercial mortgages, bridging loans, development finance and more
- Insurance & Protection: Including life, home and critical illness cover for families and individuals, as well as landlord and business protection insurance
Echo Finance is regulated by the Financial Conduct Authority and is reviewed annually by an independent compliance company. All of our brokers and advisers hold industry-standard qualifications, such as CeMAP, CeRER and DipMap, where required.
We are committed to providing advice through the channels that best suit your needs. Our brokers can provide advice via phone, email, video and web chat from anywhere in the UK, but we also aim to offer face-to-face appointments for those who request them.
