What is the difference between a discount mortgage and a tracker mortgage?
Discount rates are linked to the mortgage provider’s standard variable rate. However, not all lenders pass on the benefit of a Bank of England Base Rate cut, so in the event of this happening you might not see any change.

The tracker mortgage shadows the movement of the Bank of England Base Rate. Tending to offer a low rate compared to say a fixed rate or flexible mortgage, the tracker mortgage benefits from reflecting current economic conditions. Your payments will drop if the base rate drops, but will also rise if it rises.

What type of person could have a tracker mortgage?
Tracker mortgages are often suited to borrowers who are looking for cheap initial payments and can take the risk that their payments could increase at a later date.

Important things to consider
As with any loan, it’s important to check the small print on a tracker mortgage. The interest rate will be set at a certain amount – say, 0.11% below base rate for 2 years. However, your lender may specify that they reserve the right to review the situation should the base rate fall too low. Or they may specify a minimum rate that you will have to pay if the base rate plunges below expectations, in order to protect them from your paying an extremely low mortgage rate. Such clauses defeat the object of the tracker mortgage.

Other nasties to watch out for are compulsory insurance and extended early repayment charges. The latter tie you in after the rate control period, eg after 2 years, forcing you to pay your lender’s higher Standard Variable Rate. Remember: the only thing you should have to get from your mortgage provider is your mortgage.

Your mortgage broker should be able to find you a great tracker mortgage, with a low interest rate and no hidden clauses.