Discounted Rate Mortgages
Discounted rate mortgages are home loans where the interest rate is set a fixed percentage below the lender’s Standard Variable Rate (SVR) for a specific period or sometimes for the entire mortgage term. The SVR is determined by your lender and can rise or fall at any time by any amount. This means your monthly payments can vary as the SVR changes, usually in response to changes in the Bank of England’s base rate.
With discounted variable mortgages, you benefit from paying less interest compared to the lender’s standard variable rate. However, your monthly payments may fluctuate significantly, so it’s important to be prepared for possible changes.
Discounted Mortgages
Discounted mortgages are generally offered for a limited time frame which is usually between two and five years. The longer your discounted period is, the amount of discount tends to be smaller.
Once the timeframe of your discounted variable rate mortgage comes to an end, your lender will automatically transfer you onto a standard variable rate. After this has taken place your monthly repayments will increase as you will be paying a higher rate of interest. So, when you have reached this point you are usually better off to remortgage to a new deal.
This is something we can help you with and we should start to think about options for you about 6 months before the current deal is due to end, we will shop around for you after talking to you about all the options available.
For further advice on discounted rate mortgages, contact us today for guidance from our expert mortgage brokers.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up the repayments on your mortgage.
FAQs
What is a discounted rate mortgage?
The interest rate on a discounted rate mortgage is set at a fixed percentage below your lender’s SVR (standard variable rate). It can fluctuate from month to month, just like the payments on SVR mortgages.
A discounted rate mortgage will offer a discount from the SVR, for a set period. If the lender’s SVR is 7.5% and your deal includes a discount of 1.75% then the interest rate payable will be 5.75%. Whilst the discount is a set amount, as it is linked to a variable rate the pay rate (and hence payments) could go up or down monthly.
How does a discounted rate mortgage differ from other types of mortgage?
The most significant difference is that the standard variable rate that a discounted rate is linked to is set by the lender, rather than the Bank of England. This means that the bank can change the rate at any time.
How long does the discounted rate period typically last?
The set period for a discounted rate mortgage is usually 2 to 5 years.
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