Tracker vs Discount Mortgages: Key Differences Explained

If you are exploring mortgage options, you may be considering Tracker and Discounted Variable Rate products. Even though both mortgages share similar features, as they offer variable interest rates, there are some key differences that you need to be aware of before you sign the deal.

This article explores the key differences between Tracker and Discount mortgages, giving you a better understanding of which product may be best for you.

Let’s dive in.

What is a Tracker Mortgage?

A Tracker mortgage is defined as a mortgage with a variable interest rate which “tracks” the Bank of England’s Base Rate over a set period. Tracking in this sense means that the mortgage will change in line with the Base Rate, whether that’s an increase or decrease. Mortgage lenders will always add a margin to the Base Rate to make sure that the deal remains profitable for them throughout the length of your deal.

For example, a mortgage lender may offer a Tracker deal of 0.5% + the Base Rate over a 2 year product term. If the Base Rate is set at 3.00%, the interest rate paid by the mortgage borrower would be 3.50%. This interest rate would remain at 3.50% until the Base Rate changes or until the product term expires.

If the Bank of England changes their Base Rate during the product term, your mortgage lender will automatically adjust your Tracker interest rate to follow suit, so no action is needed from you. But if your product term expires and you have not arranged a remortgage, the deal will switch to the lender’s Standard Variable Rate (SVR).

It’s always best to contact a whole of market fee-free broker, like Boon Brokers, so that you don’t find yourself stuck on the lender’s SVR – which is normally far more expensive than other mortgage deals. Most Tracker deals are offered over just 2 years, which will fly by.

Using a professional broker to monitor your Tracker and arrange your remortgage should save you time, money, and alleviate any unnecessary stress.

What is a Discount Mortgage?

A Discounted Mortgage, also known as a Discounted Variable deal, is a mortgage where the interest rate is set below the lender’s Standard Variable Rate (SVR) for a fixed period. Instead of tracking the Bank of England’s Base Rate, like a Tracker, the discount is applied to the lender’s own SVR.

For example, if a lender’s SVR is 7.00% and a 1.00% discount is applied, you would pay 6.00%. Then, if the lender changes its SVR, your mortgage rate will change with it.

This means that Discounted Rate Mortgages can benefit from rate reductions, but the financial position of the lender is more important to these deals than the financial standing on the UK. Because of this, rate movements may be less predictable than Trackers. If you are considering a Discounted deal, you will need to be comfortable with uncertainty around future payments.

How Do Tracker and Discount Mortgages Differ?

The main difference between tracker and discount mortgages is what drives changes to the interest rate.

A tracker mortgage moves in line with the Bank of England base rate. This rate is set to help manage inflation across the UK economy. When inflation rises, the base rate may increase to slow spending. When inflation falls, the base rate may be reduced to encourage economic activity. As a result, changes to a tracker mortgage rate are usually easy to follow and directly linked to these wider economic decisions.

Whereas, a Discount Mortgage is linked to the lender’s Standard Variable Rate. While this rate may be influenced by changes to the base rate, it is ultimately set by the lender. Factors such as funding costs, market conditions, and internal pricing decisions can all play a role in the SVR.

Due to these factors, changes in Discount Mortgage rates can be harder to anticipate. In simple terms, tracker mortgages tend to offer clearer visibility over how rates move, while discount mortgages rely more on individual lender decisions. Both have variable interest rates, so payments can rise as well as fall.

Are Tracker Mortgages More Transparent Than Discount Mortgages?

Yes, Tracker Mortgages are more transparent than Discounted Mortgages because their interest rates are directly linked to one source – the Bank of England Base Rate. When the Base Rate changes, you know exactly how your Tracker Rate mortgage will change, as the margin above the Base Rate is fixed for the Tracker period.

Economists can somewhat predict Base Rate changes because it is set with the sole objective from the Bank of England of achieving their Inflation Rate Target.

Whereas, with a Discount Mortgage, the rate is tied to the lender’s Standard Variable Rate, which will be influenced by many factors that are unknown to borrowers. Factors that can influence Standard Variable Rates include the lender’s costs of funds, operational and capital costs, credit risks, strategy, portfolio position, and more. This makes it almost impossible to predict changes to the SVR.

That being said, transparency does not necessarily mean that one option is better than the other. One may be better than the other depending on the borrower’s circumstances. You should speak with a whole of market mortgage broker, like Boon Brokers, to understand whether a Tracker or Variable is better for you.

Can Lenders Change Discount Mortgage Rates?

Yes, lenders can change their Discount Mortgage Rate because it is directly linked to their Standard Variable Rate. While the Discounted percentage from the SVR remains fixed for the Discounted period, the SVR itself can change at the lender’s discretion.

In practice, this means your mortgage rate may change even if the Bank of England’s Base Rate remains the same.

Do Tracker Mortgages Have Caps or Collars?

Some tracker mortgages come with caps or collars, but the vast majority do not. Caps and collars are designed to limit how much the interest rate can move during the Tracker period, which is typically 2 Years with most products.

A capped Tracker mortgage sets an upper limit on the rate you can be charged, even if the Bank of England significantly increases their Base Rate.

Whereas, a collar Tracker mortgage sets a minimum rate. This means your mortgage would not fall below a certain level, even if the Base Rate falls sharply.

As caps and collars are so rarely offered by mortgage lenders, you should assume that they will not apply to your Tracker. Although, it’s always best to check with your mortgage broker.

Our experts at Boon Brokers would be more than happy to go through your most suitable Tracker Illustration so that you understand each feature of the product.

Do Discount Mortgages Have Rate Limits?

Discount mortgages are less likely to have formal rate caps or collars in the same way that Tracker mortgages do. This is because Discounted Mortgages may be subjected to greater rate volatility from the lender. Since lenders might need to drastically change their Standard Variable Rate to meet their needs, most lenders can’t risk implementing rate caps.

It’s worth remembering that if the lender increases its SVR, your mortgage rate will normally rise by the same amount, even if the wider mortgage market rates are unchanged.

With that being said, lenders are expected to treat customers fairly in accordance with their FCA compliance. Mortgage lenders must communicate rate changes clearly. However, as Discounted deals are unlikely to have caps or collars, borrowers should be comfortable with the possibility of rates increasing significantly in either direction.

What Fees Apply to Tracker and Discount Mortgages?

The fees associated with tracker and discount mortgages are broadly similar and depend more on the specific product and lender rather than the type of mortgage.

Common fees that you should expect with both products include a product or arrangement fee, valuation fees and legal costs. Like most other mortgages, product or arrangement fees can often be added to the loan, but just bear in mind this is likely to increase the overall interest payable over the term of the mortgage.

Valuation fees will be payable at the application stage, whereas legal fees will be payable upon completion of the transaction.

There is an important fee-related product feature of Tracker and Discount mortgages that can make them attractive to borrowers. This feature may even be the reason why borrowers opt for a Tracker or Discount deal instead of a Fixed mortgage. Many Trackers and Discounted mortgages have no, or minimal, early repayment charges. This means that during the product term, if there are no early repayment charges, borrowers can overpay their mortgage at their discretion. If they wish, they could clear the entire mortgage without an early repayment charge.

For those hoping to move or clear their mortgage in a short time frame, no early repayment charges may make Trackers or Discounted mortgages more desirable.

You may be wondering if tracker mortgages have exit fees. To be clear, most mortgages, regardless of their rate type, will have exit fees. These fees are different to early repayment charges and tend to only be for a sum in the hundreds of pounds. You will rarely find a tracker mortgage with no exit fees. Whereas, an early repayment charge can be based on a percentage of the loan, which could cost thousands of pounds.

Are Tracker Mortgages Better for Overpayments?

Yes, Trackers are generally better for overpayments than other products, but this depends on the specific product rather than the mortgage type alone. There are many deals that allow tracker mortgage overpayments without charge or have higher overpayment limits. If flexible overpayments is important to you, selecting a Tracker may be more suitable than a Fixed Rate deal. With a Fixed mortgage, overpayments are normally capped at 10% of the outstanding balance per annum.

Even though there are many Trackers that have no early repayment charges, a number of lenders still insist on early repayment charges regardless of the product type. Some may even apply an early repayment charge at the same rate as their Fixed rate deals, so you need to be careful. If you are looking for a Tracker mortgage with no early repayment charges, giving you access to unlimited overpayments, it’s always best to speak with a whole-of-market broker, like Boon Brokers, to assess your options.

If making regular or large overpayments is a priority, reviewing the mortgage conditions carefully can help avoid unexpected costs later on.

Why Should I Choose a Tracker Mortgage?

Tracker mortgages have seen a surge in popularity from mortgage borrowers over recent months due to the current state of the UK’s economy. In a recent survey from the Bank of England, completed in December 2025, there was an overwhelming consensus from participants that the Base Rate is expected to fall in 2026.

Respondents expect the Base Rate to fall to 3.25% in mid-to-late 2026 and 3.00% by the end of 2026. This is exciting news for mortgage borrowers with Tracker mortgages, as they would see a fall in their interest rates. Although, even though the Base Rate is forecasted to fall, it’s not guaranteed.

If you value clarity in how your interest rate is set and are comfortable with some movements in your mortgage payments, it may be worth exploring Tracker mortgages.

Also, for those looking for lower early repayment charges and the chance of a lower interest rate if the Base Rate falls in line with market predictions, Trackers may be more suitable than other product options.

Saying that, a Tracker mortgage is not for everyone. Trackers require careful budgeting and have a degree of risk due to their variable interest rate. Whereas, for borrowers that value the security of a fixed mortgage payment, unable to change from market conditions, then a Fixed rate deal is likely to be more suitable.

Who Should Choose a Discount Mortgage?

A Discounted mortgage may suit borrowers that are comfortable with a variable interest rate being linked to a lender’s own pricing, rather than an external source. It can work well if the initial discounted rate offers good value compared to other variable products available. You just need to be prepared for volatile rate changes in the lender’s SVR, which can occur at any time.

This type of interest rate can appeal to those who place to remortgage within a few years and want to benefit from a reduced interest rate in the short-term. It may also suit borrowers who prioritise flexibility and are less concerned about tracking wider economic indicators – like the Base Rate.

Which is Better: Tracker or Discount Mortgage?

There is not a single answer to this question, as the correct answer will very much depend on the borrower’s circumstances. For a broker to advise on a Tracker vs Discounted mortgage, they will need to assess your completed Fact-Find and discuss your plans for the future.

As a summary, a Tracker mortgage offers clearer visibility over why your rate changes, as it strictly follows the Bank of England’s Base Rate. This suits borrowers who want transparency are are comfortable with payments rising or falling in line with the country’s economy.

Whereas, a Discounted mortgage is tied to the lender’s own pricing. While the initial interest rate may be more attractive than a Tracker deal, depending on the wider economy, it can change in a heartbeat by any amount. This makes a Discounted Mortgage far less predictable than a Tracker deal.

In the current climate, many borrowers are asking “Is a Tracker better than a Fixed?” due to the poor interest rates currently being offered for Discounted products. However, as the mortgage market is constantly evolving, this may change in the near future. That’s why it’s always best to consult a whole-of-market broker, like Boon Brokers, before selecting your mortgage.

Do you need help securing a Tracker or Discounted Mortgage?

Contact Boon Brokers today and let our mortgage experts find a product that matches your needs.