Tracker mortgage defined

Tracker mortgages follow changes in base rates. This means that if the base rate goes down, your monthly payments will be reduced.

10:36 12 July 2013

Tracker mortgage is a type of mortgage that follows changes in the base rate. A constant difference is also taken into consideration which is between the base rate and the mortgage interest rate.

Typically, the standard variable rate that is followed by most lenders is about 1.5per cent above the base rate. One thing that you need to understand is that when the base rate falls, it doesn’t necessarily mean that the standard variable rate will fall as well.

However, tracker mortgages tend to have a smaller difference above the base rate, which is about 0.75per cent. They are guaranteed to rise and fall with the base rate.

This simply means that should the base rate increase, your monthly payments will increase as well. If the base rates decline, you’ll enjoy lower monthly payments.

Tracker mortgage typically applies to fixed terms only. After this period of time, the interest rate will be reverted back to the lenders’ standard variable rate.

Taking advantage of a tracker mortgage offers some advantages. This includes; the interest rate payable is typically lower when compared to lender’s standard variable rate.

It also means that when there is a drop in the Bank of England’s base rate, it will mean lower interest rate on your mortgage loan. This translates to lower monthly payments.