Tracker vs fixed rate mortgage: which suits you?

Almost every mortgage deal is either fixed or tracker. A fixed rate stays the same for the length of the deal. A tracker rate follows the Bank of England base rate, plus a set margin, so your payment moves when the base rate does. Neither is automatically cheaper — they suit different people.

How a fixed rate works

Your interest rate, and so your monthly payment, is locked for the deal period — usually two, three or five years, sometimes ten. If the base rate rises, you're protected; if it falls, you don't benefit until your deal ends.

• Certainty: you know exactly what you'll pay each month.
• Early repayment charges (ERCs) usually apply if you leave during the fix — often a percentage of the balance that steps down each year.

How a tracker works

A tracker is priced as the base rate plus a margin — for example "base rate + 0.75%". If the base rate moves by 0.25%, your rate moves by the same amount, usually from the following month.

• Your payment falls when the base rate is cut — and rises when it goes up.
• Many trackers have low or no early repayment charges, so it's easier to switch to a fix later.
• Check for a collar (a floor your rate won't go below) — it limits how much you'd benefit from cuts.

Which suits you?

• Choose a fix if a payment rise would stretch your budget, or you simply value knowing what's going out each month.
• Consider a tracker if you could absorb a higher payment, expect rates to fall, or want the freedom to move or overpay without large charges.
• Compare like for like: a tracker's starting rate is only a snapshot, while a fix's rate is what you'll pay for the whole deal.

See today's tracker rates next to 2-year fixed rates, or set an alert for whichever you're leaning towards.

This is general information, not mortgage advice. A qualified adviser can help you decide what suits your circumstances.