With a tracker, you will benefit from any drop in interest rates and can save yourself the costs of remortgaging. 

A tracker mortgage is a mortgage with a variable rate of interest which follows the interest rate set by the Bank of England by a set margin. Most lenders will offer trackers at a preset percentage above the Bank of England interest rate, often referred to as the Base Rate.

Typically, the rate charged will be no more than one per cent above the Base Rate. As a general rule, the closer the tracker to the Base Rate, the better the deal - although you should always take into account the impact of any fees you have to pay.

By far the most important thing to remember is that, when the Base Rate changes direction, so does a Base Rate tracker. So, unlike a fixed rate, your repayments can fluctuate on a monthly basis. If the Base Rate goes up, your monthly payments will increase.

Every month, the Base Rate is set by the Bank of England. This means that once you link your mortgage interest rate to the Base Rate, the lender cannot change the rate of your mortgage except when the Base Rate changes. Changes in the Base Rate are always reflected in your monthly repayments straight away.

Trackers also often come with flexible features, such as the ability to make overpayments, underpayments and take payment holidays.

Lifetime trackers

A lifetime tracker is charged at a set margin over the Base Rate for the entire lifetime of the mortgage.

This means that if you took out a lifetime tracker plus one per cent, you would pay exactly one per cent above the Base Rate every month until you pay off the mortgage or switch to a different arrangement.

The greatest advantage of a lifetime tracker is that you can forget about it. You never need to worry about taking out another mortgage ever again and you will not have the hassle and expense of remortgaging to get the lowest rate every few years.

Lifetime trackers may initially appear more expensive than discount trackers, which are often charged at a margin below the Base Rate during the discount period. But after this period is up, a discount tracker is likely to revert to a higher rate.

A lifetime tracker is therefore likely to prove more cost-effective than a discount tracker over the long term.

PROS of a tracker

· Lower monthly repayments when the Base Rate drops
· No need to remortgage every few years

CONS of a tracker

· Higher monthly repayments when the Base Rate rises
· Does not provide the security and peace of mind that a fixed rate does

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