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What’s the difference between a tracker and variable mortgage?

Should I get a tracker or a variable rate mortgage? Get the right advice here.

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By Pete Mugleston  | Mortgage Advisor Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 23rd October 2019 *

Should you go for a tracker or variable rate mortgage? That’s a very good question, and the answer depends on your circumstances as there are pros and cons to both products. 

If you’re still unsure which one to choose after reading this article, then why not have a chat with one of the advisors we work with, there is no obligation, their advice is free and they really are experts when it comes to offering the right advice on tracker and variable mortgages. You can arrange a chat here

We’ll break this article into a few sections to make it easy to compare the two, including -

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What’s the difference between tracker and variable rate mortgages?

Put simply, a variable rate mortgage follows the Standard Variable Rate of the lender, and these can be very different depending on your circumstances and the lender in question. A lender can choose to change their standard variable rate at any

time. Whilst normally linked to changes in the Bank Of England rate, they don’t have to be.

Whereas a tracker mortgage simply follows, or “tracks” the Bank of England’s base rate. 

Variable rate mortgage

Many people rarely take the time to compare how competitive their mortgage deal is, so they tend to end up with a standard variable rate mortgage. This could end up costing them more than they really need to pay on their mortgage. 

Because the repayments on an SVR mortgage can be uncompetitive when compared to special offers on the market, it pays to check what deals are available. 

This is where the advisors we work with come in. They are ‘whole of market’, which is to say that they have a working relationship with all lenders, not just a select few, so they are able to find the best deals available.

You can arrange a no obligation chat here. It won’t cost you anything, but it could save you money. 

Tracker mortgages

These mortgages work in a similar way to variable rate mortgages. The main difference is that a tracker mortgage follows the Bank of England base rate, rather than the lender's Standard Variable Rate (SVR).

You are guaranteed to benefit from the full effect of any rate cut. But, by the same token, you will be subject to any rate rises.  

The main advantage is that the rates are usually lower on a tracker mortgage. 

Tracker vs variable mortgage

Choosing between the two can be tricky, as they both have pros and cons. So you should always seek expert advice from one of the advisors we work with. 

If your tracker rate is low and easily affordable, then you have the option of making overpayments, which will both reduce the length of your mortgage and the amount of interest you’ll pay. 

However, you need to be aware that some tracker mortgages have early redemption charges. There are even some tracker mortgages available that have a cap on how high the interest rates can go, or a collar on how low the interest rate can go. Again, you should check with one of the advisors we work with. Their advice is free and without obligation. 

Are there any alternatives to variable rate and tracker mortgages?

There a number of options open to you and the expert advisors we work with can offer the right advice on which mortgage best suits your needs. 

They include…

  • Fixed rate
  • Discounted variable rate
  • Capped rate

What is a fixed rate mortgage?

You and the lender agree on a time frame where the interest rate will not change. This could be one, two, three, five or even ten years. 

The main advantage is that you will pay the same amount for the agreed period no matter how high interest rates go. The downside is that you won’t benefit if they go down either. 

These deals are popular with people who may feel that their finances are a little stretched, so they opt for the peace of mind that comes with a fixed rate mortgage. 

What’s the difference between discounted variable and tracker mortgages?

With a discounted variable rate mortgage, the rate for your mortgage is set by the lender at lower rate that their Standard Variable Rate. The discount is usually around 2% and is set for a year or more, depending on the lender.  

But be aware that the rate can go up and down depending on market fluctuations, so your mortgage payments could go up and down as well. 

What are capped rate mortgages?

A capped rate mortgage can include -

  • Variable Rate Mortgages
  • Tracker Rate Mortgages
  • Discount Rate Mortgages

Although the amount of interest can go up or down depending on the base rate of your mortgage providers Standard Variable Rate, they cannot go above a pre-agreed amount. 

The main advantage is that you are protected from large interest rate rises, although you will benefit from falling interest rates. 

The downside is that interest rates start at a higher rate than most, and the cap can be set quite high. 

Where to get the right advice on tracker and variable rate mortgages

When it comes to mortgages, whether tracker or variable rate, it pays to get the right advice. 

The advisors we work with are experts when it comes to finding the best deal for your circumstances. They may even be able to help if you’ve been refused a mortgage or have bad credit

This is because they are ‘whole of market’, which means they have access to all lenders, not just a select few. 

You can arrange a free, no-obligation chat here or call 0808 189 2301 today. So whatever your background or circumstances, we’ll find the right broker for you … fast, simple and free. 

Updated: 23rd October 2019
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FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.