Twelve of the best variable mortgage deals

With the base rate predicted to remain low for the foreseeable future, trackers are now a better bet than fixed rates. Save money now with one of these 12 cheap tracker deals.

Fixed rates have long been the darlings of the mortgage market. As the product of choice for UK borrowers these safe and secure mortgages have accounted for 50% or more of all mortgages for as long as I can remember -- and that figure routinely rises to over 75% of mortgages when they are well priced.

Currently, fixed rates are not particularly well priced in relation to the Bank of England Base Rate (0.5%) and in relation to their tracker rate counterparts. And this means that tracker deals are rising in popularity.

What's so good about trackers?

The interest rates for starters.

Borrowers with a deposit (or equity) of 25% can choose from a range of deals at under 3% with The Co-op Bank's market-leading three-year tracker at just 2.39%.

When you look at equivalent fixed rates (three-year deals for those with 25% upfront) you are paying a premium of at least two percentage points --a massive difference that could put a serious dent into your monthly income.

For example, if you borrowed £175,000 at a rate of 2.39% your monthly repayments would be £775 (based on a 25-year repayment mortgage)

If you paid 4.39% (which is more realistic for a three -year fixed rate) your monthly repayments would be £961, an extra £186 a month -- or £6,696 over three years.

Another advantage of trackers is the fact that most long-term trackers (aka 'lifetime trackers') have no early repayment charges - although short-term deals do usually have some short-term restrictions.

So if you take out a lifetime tracker now and then you want to remortgage to a different deal in a few years' time, you are usually free to do so without penalty. You could jump to the security of a fixed rate in a year's time, and you won't incur huge costs.

Some lenders even offer this ability to lock into a fixed rate without penalty as a special feature of their tracker deals. Nationwide, for example, offers a 'droplock' facility on its whole tracker range, allowing borrowers to move to one of its fixed rates at any time penalty free. So you get the ability to benefit from low rates now with the comfort of knowing you can fix your rate at any stage.

Of course, there are no guarantees that the fixed rates on offer in the future will be particularly competitive, but that's the chance you take.

What's not so good about trackers?

The fact that you are taking a gamble with your mortgage rate.

Trackers are variable, which means they can go up and down - unlike fixed rates. If the Bank of England decides to increase the Base Rate your pay rate will rise too -- and there is no limit to how high it can go. Your monthly repayments could double or even triple if rates rocket. Or they could stay the same or even decrease (not likely as the Base Rate is currently at a historic low!).

That's the chance you take for the benefit of a low tracker now. Because with a tracker, the future movement of the Base Rate is absolutely key to what you have to pay.

What's going to happen to Base Rate?

That is the key question and there are three things to consider.

Will it rise?

If so, when?

And how quickly?

The first question is pretty easy to answer. With the Base Rate at its lowest ever level, it is certain to rise - and it could rise significantly from its current level of 0.5%.

As to when it will rise and how quickly, this is more difficult to answer. But the experts increasingly believe that rates could stay low for the foreseeable future. And this makes low tracker rates even more appealing. For each month the Base Rate stays low, borrowers on low tracker rates are quids in.

Last week, the Bank of England's Quarterly Inflation Report talked of a slow recovery for the UK economy and Governor Mervyn King said that inflation was more likely to be below target than above it for the medium term. This suggests that the Base Rate will remain low for some time yet, with some commentators suggesting Base Rate could remain at 0.5% until well into 2011.

Indeed, three month and six month LIBOR (the London Interbank Offered Rate) are particularly low at 0.87% and 1.09%. This is the rate of interest which lenders have to pay when they borrow from each other. So lenders are getting away with paying very little for funding at the moment. And this suggests that the market is not expecting any rate increases at least for the rest of this year.

Which, when combined with the cheap pricing of trackers compared to fixed rates, makes trackers look very attractive indeed.

But, and this is a big but...

If you really need to have security of payments and cannot afford for your monthly repayments to rise, a fixed rate is the only way to guarantee this. You might pay a little more on your interest rate now, and if rates remain low you could feel like you are paying over the odds for a sustained period but at least your monthly repayment will not rise.

No matter what the experts say, there are no guarantees that rates will not rise soon, and rise significantly at that. If you need to know exactly what your repayments will be, then you need to fix - it's as simple as that.

If you can accept the risk of rising rates for the benefit of a low rate now (and can afford potentially higher repayments), then it's a good time to get a tracker.

Best buy trackers

Below are some of my current favourite tracker rates -- the first table shows two and three-year trackers and the second looks at lifetime (or long- term) trackers.

Short-term deals

Lifetime trackers

Compare mortgages with lovemoney.com