The Tracker rate is a relatively new product which is becoming more common now. You will usually pay a set percentage above the Bank of England base rate, sometimes for the life of the loan, so the rate ‘tracks’ the base rate. Alternatively, you may choose a rate which tracks the more volatile LIBOR.

To work out whether a tracker is good value you must look beyond any initial deal and find out how high your rate will be after the introductory period. The closer the rate is to the Bank of England base rate initially, the higher the rate will be over time.

Fixed, discounted and capped tracker rate deals are also available. It is also possible to take out a lifetime tracker for the full term of your mortgage. A good deal could mean that you are paying less than 1% above the base rate, which could put you at paying 1% less than your lender’s Standard Variable Rate.

Advantages

You are not relying on a lender’s Standard Variable Rate, which is set higher than the Bank of England base rate.

You are not reliant on the whim of the lender to raise or cut interest rates according to all their financial products, so rate cuts will have an immediate effect on your payment.

If you choose a discounted or stepped discounted rate you can spend the first year or two of your mortgage paying less than the base rate.

Disadvantages

As with any variable rate, your repayments may rise depending on the Monetary Policy Committee’s monthly meetings to decide on interest rate changes. Lenders do not always pass the base rate changes on to their borrowers, so your monthly payments could rise, whilst those paying a Standard Variable Rate may not be affected.

As with any rate deal, check whether early redemption penalties are charged beyond any initial deal period.