Fixed or tracker mortgage?

Fixed or tracker mortgage: the difference

Fixed rates are priced from swap rates, which reflect where markets expect Bank Rate to go. That is why a fix can cost more than a tracker today: the market is pricing in what it expects over the deal.

The break even point

A tracker costs less than a fix while Bank Rate plus the tracker’s margin stays below the fixed rate. With a 5.00% fix and a tracker at Bank Rate plus 0.80%, the tracker is cheaper while Bank Rate stays below 4.20%. The calculator above works this out with today’s figures.

The break even point tells you how much room Bank Rate has to rise before the tracker costs more. Whether it will rise that far is the uncertain part. See the Bank of England base rate and Theo’s reading of where rates are heading.

When a fixed or tracker mortgage suits

A fix tends to suit people who need to know their payment for budgeting, or who would struggle if rates rose. A tracker tends to suit people who can absorb a rise, expect Bank Rate to fall, or value being able to leave or overpay without a charge, which some trackers allow. Many people choose a tracker with no early repayment charge so they can switch to a fix later if rates start to rise. An FCA-authorised mortgage adviser can weigh this up with you.

Things to check on a tracker

Check the margin, how long the tracker lasts, whether there is an early repayment charge, and whether there is a floor or collar, a minimum rate the tracker will not fall below even if Bank Rate does. For more on how trackers work, see tracker mortgages explained. For the length of a fix, see should I fix for 2 or 5 years.