Tracker Mortgage

Track interest rates and pray that they fall

Unlike variable rate mortgages, which the bank can vary at will, a tracker mortgage is guaranteed to follow the ups and downs of interest rates – usually the Bank of England base rate. If the rate falls, so do your payments – but if it rises, your mortgage costs more.

On the face of it, a tracker mortgage sounds like a variable rate mortgage: if the base rate goes up, so do your payments; if it goes down, your payments go down too. However, variable rate mortgages aren't guaranteed to do this: if the bank doesn't fancy cutting rates, then it doesn't have to. With a tracker mortgage, cuts – and increases – are guaranteed.

A tracker mortgage is usually based on the Bank of England base rate, with a slight increase so the lender can still make money. With a variable rate mortgage you'll normally pay around 1.5% more than the base rate; with a tracker mortgage the difference is much lower – usually, around 0.7%.