What is a Tracker Rate?

A tracker mortgage product moves directly in line with another financial measure. For most mortgage consumers, we are usually looking at a Bank of England base rate tracker. This means that this particular product will track exactly what the ‘base rate’ does. So if the base rate moves up 0.5% then the tracker rate product will do the same. However, in the past some tracker rate mortgages have been known to track other industry indices, one of them for example was the LIBOR rate (London Interbank Offered Rate*).

This product usually has a product term for example 2, 3, 5 years. However longer terms are sometimes available. For our example we are going to be using a 10 year tracker starting in January 2006. As you can see at the end of your product term, if you do not remortgage / change product then the lender will look to put you onto their SVR rate, which sometimes is higher and could mean a jump in mortgage payments. This is called ‘payment shock’.

Some key Features:

  • Usually there are start up costs like an arrangement fee charged by the bank.
  • As it does normally have a fixed contract date, it you were to finish your contract early, the bank may charge you an Early Repayment Fee.
  • You see any direct changes to the Bank of England base rate.
  • Can be quite difficult to budget for. As you can see below the bank of England base rate can and does change.

Tracker Rate Example

To give you an idea of what a tracker product looks like, here is a graph with the Bank of England Base Rate, a Standard Variable rate and also a Tracker product.

If you wish to discuss more about Tracker Rates why not book your free consultation now.