Discount mortgages

Discount mortgages are often amongst the cheapest mortgage deals on the market.  As the name suggests, discount mortgages offer a discount off the mortgage lender’s standard variable rate (SVR) for a set period of time – for example, 1.5% off the lender’s standard variable rate for 2 years.  

Discount mortgages are variable rate mortgages because they are determined by the lender’s SVR, which in turn varies according to what is happening to the Bank of England’s Base Rate (BoEBR).   This is similar to a tracker mortgage, so called because it tracks the BoEBR, with the important difference that a rise in the base rate means an automatic rise in the tracker mortgage’s interest rate, just as a fall in the base rate means an automatic fall for the tracker and thus a saving for yourself on your monthly repayments.  However, with discount mortgages you are at the mercy of your lender: it may well decide to increase its SVR following a BoEBR increase, but will it cut its SVR if the BoEBR drops?

It’s for this reason – fluctuating monthly payments and decisions beyond your control – that discount mortgages are probably not the first choice of those who need to watch their finances carefully.  Any increase in interest rates following a lender’s increase could result in the borrower’s inability to make the monthly repayments.

However, as discount mortgages offer highly competitive rates, then if you can afford to cope with increases to your monthly payments and feel that interest rates are and could remain low in the future then a discount mortgage can work out excellent value. 

One sound bit of advice is to avoid extended early repayment charges.  This means that you will not be penalised at the end of the discount mortgages initial term – so after 2 years in the example given above, meaning that you will be free to remortgage to a new competitive mortgage deal without being penalised.

To find out what discount mortgages we currently have on offer, click here.


See also:
Tracker mortgages
Fixed rate mortgages
Types of mortgages available

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