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’.