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Tracker mortgages have become very popular in recent years, gaining popularity over traditional discount mortgages. Tracker mortgages are linked to the Bank of England Base Rate, with the rate at a set amount, usually above the base rate. Your payments will drop if the base rate drops, but will also rise if it rises.
Many people prefer this to a traditional discount rate. With a traditional discount the interest rate tracks the lenders Standard Variable Rate (SVR). However there is no guarantee that the lenders SVR will remain competitive, the lender being free to increase the rate at any time, or to not reduce it when the Bank of England reduces their rate.
Who is a tracker mortgage suitable for?
Tracker mortgages are suited to borrowers who are looking for cheap initial payments and can take the risk that their payments could increase if the Bank base rates increase. They are particularly popular when people think that the base rates are likely to be reduced in the future.
Some Tracker mortgages come with cheap set up fees and good flexibility, including Tracker mortgages for the term of the mortgage but with no repayment penalties, or penalties in only the first few years have become increasingly popular.
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