What are variable rate mortgages; trackers and discounts?

At this time (summer 2008), we feel that interest rates are likely to increase to the highest level seen in a decade. People that have not fixed or capped their mortgage are likely to see costs increase significantly. If you prefer not to fix your payments then you could chose a variable rate.

Tracker mortgages
A tracker mortgage follows the Bank of England base rate at a set level, generally at a fixed percentage above the base rate. Every time the base rate changes your interest rate (and therefore your monthly payment) is adjusted in line with it. Tracker mortgages are available over a range of periods

Discount mortgages
Similar to the tracker, but this rate is a true discount off the Lender’s standard variable rate for a given period. An increase in the Bank of England base rate usually leads to lenders increasing their variable rate, but this is not guaranteed. Likewise any reduction in the Bank of England rate does not necessarily mean a reduction the Lenders SVR. The borrower does, however, have an assurance that for a given period he will be paying less than the Lenders SVR.

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