What is a tracker mortgage?

A tracker mortgage is specifically designed to be tied directly to a reference interest rate, typically the Bank of England’s Base Rate. This means that the interest rate on the mortgage will fluctuate in line with the base rate, allowing borrowers to benefit from any decreases in the rate, although they will also be impacted by increases. The structure of a tracker mortgage typically allows for a certain percentage above or below the base rate, which means payments will vary according to movements in the base rate level. This feature of being connected to an external benchmark rate differentiates it from fixed-rate mortgages, which offer stability with constant interest payments.

In contrast, the other options describe different mortgage types that do not involve the direct tracking of an external rate like the Bank/Base Rate. For example, a fixed interest rate mortgage locks in a rate for the entire term, insulating the borrower from market fluctuations. A mortgage that increases with inflation refers more broadly to adjustments tied to inflation rather than a specific base rate, while a guaranteed minimum payment suggests a payment structure that may not necessarily correlate with market conditions. Thus, the designation of a tracker mortgage is accurately characterized by its connection to the Bank/Base Rate.