What is a tracker mortgage?
A tracker mortgage is a type of mortgage loan that follows the Bank of England base interest rate. A tracker mortgage, or base rate tracker mortgage, is a variable rate loan that changes rates depending on the level of interest rates set.
Generally, but not always, tracker mortgages are set higher than the Bank of England base rate but lower than lender standard variable rates. A tracker mortgage is anchored to a prevailing rate, usually the Bank of England Base Rate, and is set to cost a percentage, or fraction of a percentage, more than this rate.
How does a tracker mortgage work?
A tracker mortgage loan is directly linked to an interest rate, and for a specified period it will cost a set percentage amount higher than this rate. For instance, if the tracker mortgage is anchored to the base rate at 1 per cent above, and the base rate is set to 5 per cent, the rate you have to pay will be 6 per cent.
Where does the tracker aspect come in?
Tracker mortgages are so called because they are anchored to the rate, and ‘track’ changes in base rate. Therefore, if base rate climbs by 1 per cent, the pay rate also increases by 1 per cent. Similarly, in a climate of falling interest rates, borrowers can enjoy reduced mortgage repayments.
When does the Bank of England change interest rates?
If your tracker mortgage is anchored to Bank of England base rate, you will experience a revision or maintenance of interest rates each time the Bank of England rate changes. The monetary policy committee studies rates of inflation and weighs up a number of economic factors to decide on whether to increase, decrease or maintain interest rates.