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  • Home
  • About Us
    • Our Company
    • Our Team
    • How We Work
    • Client Charter
  • Services
    • Protection
      • Why Protection is Important
      • Life Assurance
      • Family Income Benefit
      • Income Protection
      • Private Medical Insurance
      • Critical Illness
    • Wealth Management
      • Introduction to Wealth Management
      • Relationship Management
      • Lasting Power of Attorney
      • Trust Information
      • Wills
    • Business Protection
      • Introduction to Business Protection
      • Key Person
      • Share Protection
      • Directors' & Staff Benefits
      • Income Protection
      • Relevant Life Cover
      • Employers' Liability
      • Professional Indemnity
    • Taxation
      • Introduction to Taxation
      • Capital Gains Tax
      • Income Tax
      • Inheritance Tax
    • Savings & Investments
      • Introduction to Savings & Investments
      • National Savings Products
      • Endowments
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      • OEICs
      • Investment Trusts
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      • Introduction to Pensions
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Tracker Mortgages

With a tracker mortgage, the rate of interest the borrower pays is linked to a specified index, normally the Bank of England’s (BoE) base rate of interest. So whenever the base rate changes, so does the tracker’s interest rate and the borrower’s monthly repayment. For those reasons, tracker mortgages are known as ‘variable rate’ mortgages.

When interest rates are low, the borrower’s monthly repayment might be less than it would be on a different type of mortgage, such as a fixed rate or standard variable rate mortgage. But when interest rates are high, the reverse is true. And as the rate is likely to vary, the borrower can never be sure exactly when or whether their monthly repayment may change.

Although the rate of interest on a tracker mortgage is linked to, for example, the BoE base rate, the actual interest rate charged on the mortgage will be determined by the lender and will usually be higher than base rate (the ‘margin’) and usually expressed as ‘Base rate’ + ‘margin’. So if base rate is 2%, and the margin is 2%, the interest rate on a tracker mortgage will be 4%. If the base rate increases to 2.5%, the rate of interest will be 4.5% (2.5% base rates plus 2% ‘Margin’).

It is important to note that most ‘tracker’ rate mortgages have a minimum rate that will apply to the loan. For example, if loan tracking at Base rate + 2% and had a minimum rate of 3%, any reductions in the base rate below 1% would not result in a change in the rate the borrower was charged.

Although some tracker mortgages run for the life of the loan, most last for less than that — between one year and 5 years is not untypical.

Once the tracker arrangement finishes, most lenders will switch the mortgage to a standard variable rate of interest.

As a mortgage is secured against your home, it could be repossessed if you do not keep up the mortgage repayments.

Tracker Mortgages

With a tracker mortgage, the rate of interest the borrower pays is linked to a specified index, normally the Bank of England’s (BoE) base rate of interest. So whenever the base rate changes, so does the tracker’s interest rate and the borrower’s monthly repayment. For those reasons, tracker mortgages are known as ‘variable rate’ mortgages.

When interest rates are low, the borrower’s monthly repayment might be less than it would be on a different type of mortgage, such as a fixed rate or standard variable rate mortgage. But when interest rates are high, the reverse is true. And as the rate is likely to vary, the borrower can never be sure exactly when or whether their monthly repayment may change.

Although the rate of interest on a tracker mortgage is linked to, for example, the BoE base rate, the actual interest rate charged on the mortgage will be determined by the lender and will usually be higher than base rate (the ‘margin’) and usually expressed as ‘Base rate’ + ‘margin’. So if base rate is 2%, and the margin is 2%, the interest rate on a tracker mortgage will be 4%. If the base rate increases to 2.5%, the rate of interest will be 4.5% (2.5% base rates plus 2% ‘Margin’).

It is important to note that most ‘tracker’ rate mortgages have a minimum rate that will apply to the loan. For example, if loan tracking at Base rate + 2% and had a minimum rate of 3%, any reductions in the base rate below 1% would not result in a change in the rate the borrower was charged.

Although some tracker mortgages run for the life of the loan, most last for less than that — between one year and 5 years is not untypical.

Once the tracker arrangement finishes, most lenders will switch the mortgage to a standard variable rate of interest.

As a mortgage is secured against your home, it could be repossessed if you do not keep up the mortgage repayments.

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Echo Wealth Management Ltd is authorised and regulated by the Financial Conduct Authority and entered on the Financial Services Register (https://register.fca.org.uk/s) under reference: 943133.

Registered Address: 9 Fitzroy Place, Glasgow, G3 7RH.

Registration number: SC486212 Registered in: Scotland

The information contained within this site is subject to the UK regulatory regime and is therefore targeted at consumers based in the UK.

If you have a complaint about your adviser, or any financial advice you have received from your adviser, please contact us.

If you cannot settle your complaint with us, you may be entitled to refer it to the Financial Ombudsman Service (www.financial-ombudsman.org.uk)

 

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