UK Mortgages - Discounted Interest Rate Mortgage

Keeping you mortgage affordable - Discounted rate mortgage are a guarantee from your lender that you will pay lower than the standard variable rate over a period specified by the mortgager. Even if the standard variable rate rises and falls, the discount will remain at the same level.

The main feature of a discounted rate is that you are guaranteed to save money throughout the discounted term. In short, there's no risk element attached to it. If you're borrowing well within your means, this is the deal to go for. On the other hand, if your budget is strained by varying levels of rate change, this is probably not the best product to choose. But even if this is the case, don't dismiss a discounted rate out of hand. The reason is that you've probably experienced rate changes in the past and will undoubtedly do so in the future. Building a degree of flexibility into your budget to accommodate fluctuations is good practice. That's because you're unlikely to stretch your mortgage debt beyond what you think you can reasonably pay back each month. With a discounted rate, should interest rates rise substantially during the discounted term, you may not save as much as with, say, a fixed rate mortgage. Conversely, if interest rates drop substantially you will still gain, whereas the savings from a fixed rate product are reduced, or worse, wiped out. In summary, provided you have a budget that can cope with varying payments, this is one of the best low-rate products on offer

Lenders

Why would a lender offer you a discount on a mortgage? simple they want your business in the ever more competitive mortgage market.

A discounted rate works in the same way as a variable rate mortgage, During the initial period and sometimes throughout the lifetime of the mortgage, the lender will offer you a discount off the standard variable rate.

Discount Mortgage Rates are set at a percentage lower than the standard variable rate, SVR. They are fixed for a set length of time, normally the lower the term chosen to enjoy the discount, the higher the discount granted.

Of course with the discounted rate mortgage you do not get the security of a capped or fixed rate mortgage but if interest rates are unlikely to fluctuate greatly you could stand to save thousands of pounds.

How much discount?

The shorter the discount period is the better the discount, periods can range from 6 months to more than five years.

Remember you will be tied to the lender for the term of the discount unless you pay a penalty, and after the period has ended your repayments will increase proportionally with the amount of discount that was granted.

For meanings of terms please refer to glossary