What is a tracker rate mortgage?
Tracker rate mortgages (also known simply as “tracker mortgages”) offer an interest rate set at a fixed percentage above the Bank of England base rate (or an equivalent). This means your rate should stay broadly in line with inflation while the tracker rate is in effect.
The tracker rate is normally only offered for an introductory period (often 2 years) after which you will likely be moved to a standard variable rate of interest. This may be significantly higher than the tracker rate.
What are the alternatives to a tracker mortgage?
The most popular alternative to a tracker mortgage is a fixed rate mortgage. This offers a set interest rate for an introductory period (again, 2 years is common).
The advantage of a fixed rate mortgage is that you know exactly how much you will be paying each month. However, that certainty tends to come at a cost, with the interest rates on fixed rate mortgages generally being higher than the initial rate on a tracker mortgage.
Should you remortgage when the tracker rate ends?
As the tracker rate is usually only offered for a limited period, it may be worth looking at moving your mortgage to a new deal with the tracker period ends. Many mortgage lenders offer to cover standard remortgaging fees when you move your mortgage to them, making this more affordable.