What is a Discounted Rate Mortgage?

Discounted mortgages work in a similar way to tracker mortgages. Both are variable loans, meaning that the rate can change during your mortgage term. However, unlike a tracker, a discounted mortgage doesn’t follow the base rate. Instead, discounted mortgages offer a reduction in the lender’s SVR (standard variable rate) for an agreed period of time. Usually, this is around 0.5 -1.5% less than the standard rate for a duration of 2-3 years.

Discounted mortgage pros and cons...

• Discounted mortgages are good deals for people able to manage any fluctuations in their monthly repayments.
• If interest rates fall, you will benefit from lower payments.
• They are some of the cheaper available mortgages, but they are tied to a risk of increased interest rates.
• People who prefer to know exactly how much they will pay each month will probably prefer a fixed rate mortgage.
• Discounted loans only stay at the lower rate for a certain period (usually 2-3 years). After that the repayments will return to normal.
• As with any variable loan or mortgage it is important to remember that payments can go up as well as down.
• If you want to switch to another type of mortgage before your term ends, you may have to may a penalty fee.