Is a Lifetime Tracker Mortgage Right for You? Pros, Cons, and Costs Explained

A lifetime tracker mortgage can offer more flexibility than some other mortgage deals, with one of its main appeals being the potential to pay less interest when the rate being tracked falls.

For borrowers who are comfortable with their monthly repayments changing, this mortgage product offers an opportunity to benefit from falling interest rates without the need to switch mortgage deals.

In this article, we explain exactly how lifetime tracker mortgages work, the costs involved, and the potential pros and cons you need to consider. Let’s begin.

What Is a Lifetime Tracker Mortgage?

Crucially, the word ‘lifetime’ in this context refers to how long the tracker arrangement lasts. It should not be confused with a lifetime mortgage, which is a type of equity release product generally designed for older homeowners.

With a lifetime tracker mortgage, you will still have a standard mortgage term and will be required to make monthly repayments that are in line with the terms of your mortgage.

For example, if you take out a 25-year mortgage with a lifetime tracker product, your mortgage could remain linked to the same benchmark throughout those 25 years, while the interest rate you pay rises or falls as that benchmark changes.

This is different from many tracker mortgages that only track a benchmark for an initial period, such as two or five years. These are often known as term tracker mortgages because the tracker rate applies for a set term. Once that period ends, you would usually move onto the lender’s standard variable rate (SVR), unless you remortgage or port to a new deal.

Ultimately, the key difference is the duration of the product. Instead of tracking a benchmark, such as the Bank of England base rate, for an introductory period, a lifetime tracker mortgage remains linked to it until your mortgage ends or you switch to another deal.

How Does a Lifetime Tracker Mortgage Work?

Unlike a fixed-rate mortgage, a lifetime tracker mortgage does not guarantee your interest rate or monthly repayment for a set period. Instead, your monthly repayments can rise or fall depending on changes to the benchmark your mortgage tracks.

For example:

• A lender might offer a lifetime tracker at the Bank of England base rate plus 0.75%.
• If the base rate were 4%, your mortgage interest rate would therefore be 4.75%.
• However, if the base rate later fell to 3.5%, your mortgage rate would fall to 4.25%, provided the lender’s margin remained the same.

Beyond how the interest rate and monthly repayments can change, some lifetime tracker mortgages may also offer additional flexibility, such as allowing overpayments or having no early repayment charges.

It’s important to note that additional features can vary between lenders and products, so you should always check the terms carefully before deciding which mortgage is suitable for you.

How Are Tracker Rates Calculated?

The calculation for a tracker rate follows a straightforward formula:

• Benchmark rate + lender margin = mortgage interest rate

To show how this calculation works, we can use an example lifetime tracker mortgage with the following terms:

• Mortgage balance: £200,000
• Mortgage term: 25 years
• Bank of England base rate: 5.00%
• Lender margin: +1.25%
• Starting mortgage rate: 6.25%

Using these figures, let’s look at how a tracker mortgage rate would change if the Bank of England base rate changed.

In this example, the lender’s 1.25% margin remains the same in each scenario, while the final mortgage rate moves in line with the Bank of England base rate.

As a general principle, if the base rate falls by 0.25 percentage points, the mortgage rate should fall by the same amount. In this example, it would decrease from 6.25% to 6.00%, while an equivalent rise would increase the mortgage rate to 6.50%.

While tracker mortgages follow a benchmark rate, some products include contractual boundaries:

• Interest Rate Collar (Floor): A minimum rate below which your mortgage interest rate cannot fall, regardless of how low the benchmark rate drops. For example, if your collar is set at 3.0%, even if a base rate cut would mathematically lower your rate to 2.5%, you will still pay 3.0%.
• Interest Rate Cap (Ceiling): A maximum rate limit that protects borrowers by preventing the mortgage rate from rising above a specified percentage, regardless of how high the benchmark rate climbs.

When comparing lifetime tracker mortgage rates, a key factor to consider is the lender’s margin. Two mortgages tracking the same benchmark can still have different interest rates if the lenders apply different margins.

Working with a trusted mortgage broker can help you compare tracker rates across different lenders and explain how the different margins, fees and product terms may affect the overall cost of each mortgage.

What Are the Pros and Cons?

Lifetime Tracker Mortgage Pros

• Benefit when interest rates fall: If the benchmark rate that your mortgage tracks falls, then your mortgage rate will usually fall by the same amount. In turn, this may reduce your monthly repayments by a considerable amount.
• Rate changes are transparent: Because tracker mortgages follow a specified benchmark, with a lender margin added on top, it can be easier to understand why your mortgage rate has increased or decreased.
• No need to regularly remortgage: A lifetime tracker can remain in place for the full mortgage term. This means that there is no need to remortgage every few years when an introductory deal has ended.
• Some products offer additional flexibility: Depending on your chosen lender and product, you may be able to make overpayments or leave the mortgage without an early repayment charge.

Lifetime Tracker Mortgage Cons

• Mortgage rates can increase: If the benchmark rate that your tracker follows rises, your mortgage rate will usually rise with it. This can increase your monthly repayments and will result in you paying more interest while the higher rate applies.
• Monthly repayment costs are less predictable: Because your interest rate can change throughout the mortgage term, it can be difficult to predict exactly how much your mortgage costs may be each month.
• Rates may remain high for an extended period: A tracker does not guarantee that rates will fall. If the benchmark remains high for an extended period of time, your mortgage could cost more than you initially anticipated.
• A minimum interest rate may apply: Some tracker mortgages have a minimum rate. Depending on your specific product, this could prevent your mortgage rate from falling below a certain level, even if the benchmark continues to decrease.

What Fees Should You Consider?

Ultimately, the fees you pay will depend on your chosen lender, the mortgage product and whether you are buying a property or remortgaging. To help you understand some of the main costs that you need to consider, we’ve created a helpful list below:

• Arrangement fees: Some lenders charge a product or arrangement fee when you take out the mortgage. This may be payable upfront or, in some cases, added to your mortgage balance. Choosing to add this charge to the loan can result in you paying interest on that sum.
• Valuation fees: Your lender may charge for a mortgage valuation to confirm that the property provides suitable security for the loan.
• Legal fees: You may need a solicitor or conveyancer when buying a property or remortgaging. Some remortgage products may include standard legal work or offer cashback towards the cost.
• Early repayment charges: Some lifetime tracker mortgages have no early repayment charges, while others may charge you for repaying or switching your mortgage within a specified period.
• Broker fees: Some mortgage brokers charge for their advice or arranging your mortgage. However, there are fee-free brokers – like Boon Brokers – who do not charge a mortgage broker fee.

No matter the type of mortgage you’re applying for, it is always important to check the individual product terms carefully. Fees, early repayment charges and other conditions can vary between lenders and may affect the overall cost of your mortgage.

Can Your Monthly Repayments Change?

Using our earlier example of a £200,000 repayment mortgage over 25 years, with a starting mortgage rate of 6.25%, we can see how a 0.25 percentage point rise or fall in the mortgage rate could affect your monthly repayments:

In this example, a 0.25 percentage point fall in the mortgage rate would reduce the monthly repayment by around £30. An equivalent increase would raise it by around £32.

How Does It Compare With a Fixed-Rate Mortgage?

The main difference between a tracker mortgage and a fixed-rate mortgage generally comes down to certainty when budgeting. With a fixed-rate mortgage, your interest rate and monthly repayments remain the same for the agreed fixed-rate period, making your mortgage costs easier to predict.

With a lifetime tracker, your monthly repayments are less predictable. You could benefit if the benchmark rate falls, but you also need to be prepared for your repayments to increase if it rises.

To help you compare these two mortgage types, we’ve outlined the main advantages and disadvantages below:

The mortgage that is most suitable for you will depend on a variety of factors, including how much certainty you want over your monthly repayments, your attitude towards changing interest rates and the products available to you.

At Boon Brokers, our dedicated mortgage advisers can compare fixed-rate and tracker mortgage options from across the whole market, helping you understand the differences in rates, fees and product terms before deciding how best to proceed.

Is a Lifetime Tracker a Good Idea?

When deciding on whether or not a lifetime tracker mortgage is right for you, it’s important not to focus on trying to predict whether interest rates will rise or fall. Instead, the most important question to consider is whether you could comfortably afford your mortgage repayments if rates increased.

There is no guarantee that interest rates will fall or rise. As such, a lifetime tracker may be a suitable mortgage option if you:

• Are comfortable with your monthly repayments changing
• Could afford higher repayments if interest rates rise
• Want to benefit from rate reductions without regularly switching deals
• Value flexibility, particularly where a product has no early repayment charges
• Prefer a mortgage that can remain in place for the full term

However, if predictable monthly repayments are important to you, or an increase in your mortgage costs would put pressure on your budget, a fixed-rate mortgage may provide greater certainty.

Crucially, when assessing your application for a lifetime tracker mortgage, UK lenders will not just check if you can afford repayments at today’s starting rate. Under FCA responsible lending rules, lenders perform a stress test, evaluating whether your household budget could still support the monthly repayments if the benchmark rate were to rise by a further 1% to 3% above the current rate.

Ultimately, when considering if a lifetime tracker mortgage is a good idea, the decision should be based on your financial circumstances, priorities and the specific mortgage products available rather than an assumption about where interest rates might go next.

How Can a Mortgage Broker Help You Compare Your Options?

Comparing lifetime trackers involves more than looking for the lowest interest rate. Different lenders can apply different margins, fees and product conditions, while features such as early repayment charges, overpayment allowances and minimum rates can also affect which mortgage is suitable for you.

This can include:

• Comparing tracker and fixed-rate mortgages from different lenders
• Reviewing interest rates, lender margins and mortgage fees
• Checking lender eligibility criteria against your circumstances
• Identifying early repayment charges and overpayment allowances
• Explaining how changing rates could affect your mortgage repayments
• Recommending a suitable mortgage based on your needs and priorities

Working with a trusted mortgage broker can help simplify the process. At Boon Brokers, our dedicated mortgage advisers can compare mortgage products from across the whole market, with access to more than 90 lenders. We’ll research the options available to you, explain our recommendation clearly and manage your mortgage application from start to finish.

Our mortgage advice is completely free, with no broker fees to pay. You’ll have your own dedicated adviser as a single point of contact, supporting you throughout your mortgage journey.