Many homeowners don’t know what a tracker mortgage is according to research from Alliance & Leicester Mortgages.

And not understanding what a tracker mortgage is means many homeowners could be unaware of an option that could keep their monthly payments down, said the lender.

Over 8.4million homeowners (58%) in the UK do not understand how a tracker mortgage affects monthly payments and only one third (34%) know that the interest rate on a tracker mortgage is linked to the Bank of England base rate.

Almost one in five (17%) think trackers mean that monthly payments are linked to the FTSE 100 index and four per cent believe trackers mean that monthly payments are fixed.

Stephen Leonard, director of mortgages at Alliance & Leicester, said: "It is quite worrying to think that such a large proportion of homeowners are unaware of what a tracker mortgage is and how it could save them money on their monthly mortgage payments."

"There are certain advantages to choosing a tracker mortgage, especially with current low interest rates. However, homeowners should ensure they fully understand what type of mortgage they have; they can then be financially prepared should their monthly payments rise."

The results show that nearly three quarters (70%) of Britons are not clued up on trackers, and only one third know that the rate of interest follows the Bank of England base rate. These figures include both homeowners and non-homeowners.

Tracker mortgages generally suit those who have a degree of flexibility in their budget and so stand to benefit from cuts in their monthly mortgage payments following a base rate cut, as well as afford any increases.

"Whilst it is understandable that there are more non-homeowners who got the answer wrong," said Mr Leonard, "this includes those who are looking to get on the property ladder in the near future. It is important they seek advice from a qualified mortgage adviser to ensure that the mortgage they choose will be right for their individual circumstances."

• Men are more knowledgeable about tracker mortgages, with 34% getting the definition right, compared to 27% of women.
• Of the key first time buyer age range (30-39), six in ten (61%) do not understand what a tracker mortgage is.
• Those in the North East are the most clued up about trackers, with 42% picking the right definition of the mortgage. By contrast, over four in five (83%) of those living in Wales did not know the right definition.