A tracker follows the Bank of England base rate plus a fixed margin, so your payment falls when the base rate falls and rises when it rises. A discounted variable follows the lender's own standard variable rate instead, which the lender controls. Both suit people who can absorb movement in their payment, and both often come with lower or no early repayment charges — which makes them useful when flexibility matters more than certainty.
Tracker versus discounted variable
A tracker is tied to a published, external rate you can look up, so the mechanism is transparent. A discounted variable is tied to the lender's own SVR, which the lender can move at its discretion. The tracker is generally the more predictable of the two, even though both can change.
When a variable rate makes sense
- You expect to repay or remortgage soon and want to avoid an early repayment charge
- You're mid-sale, mid-divorce or otherwise expecting change
- You have enough headroom to absorb a rise without strain
- You want the option to overpay heavily without penalty
The honest risk
If rates rise, your payment rises, sometimes with little notice. Before choosing one, work out what your payment looks like two percentage points higher than today and ask whether that is comfortable rather than merely survivable. If the answer is no, a fix is the better choice regardless of what the headline rate says.
Collars and floors
Some trackers include a collar — a floor below which the rate will not fall, however low the base rate goes. It rarely matters in a rising market and matters a great deal in a falling one, so it's worth asking whether a product has one.