Tracker mortgages

This is a standard variable rate mortgage that fluctuates according to a rate set by an independent authority - usually the Bank of England. Rates are set at a certain percentage above or below the base rate for a defined period.

Pros:

• You are guaranteed to gain from any fall in the base rate
• You know exactly how your interest rate will change when there's market fluctuation - this is set according to an independent body rather than your specific lender

Cons:

• If the market rate rises steeply, your payments will be subject to an increase
• There may be heavy penalties incurred if you want to pay off your mortgage early