MORE ABOUT Discounted Rate MORTGAGES

A discounted rate mortgage guarantees that you will pay a set amount below a lender's standard variable rate for a specified period of time. Whilst the standard variable rate goes up and down, the discounted percentage will remain in line with the agreed terms.

You can get a discount mortgage lasting from a period of six months up to about five years. In general, the shorter the period of the discount, the higher the discounted rate will be. So, for example, if you have a two year discount, you may get a discount of 1% off the standard variable rate, but a one year discount could be 1.5%.

Discounted mortgages are recommended for people who prioritise keeping their initial payments as low as possible. Perhaps because it is their first mortgage and their income isn't so high and they want to have some spare cash to spend, perhaps on furnishing their home or on car repayments. The discount period can help you achieve this. 

Discount mortgages may be suitable for people who are happy to play the mortgage system. You should find out whether there are any early repayment charges for changing mortgages after your discounted period has ended. If there isn't, it may benefit you to move to another discounted mortgage at the end of the period. After that one, you could move again. In fact, assuming the mortgage market stays the same, you may be able to benefit from discounted mortgage for your whole mortgage term.

You should note that if you don't remortgage, and you do nothing after the pre-determined discount period, you will go back to the standard variable rate but most lenders should offer you some more product options.

So why do lenders offer these discounts, when the payable rate is lower sometimes than the bank of England base rate, or more importantly, lower than the savings rates that they offer? Well, quite simply, it's a marketing ploy. It's no different to any other sales promotion offered by any retailer. They are allowing you to buy the same product but at a discounted price, so that you become their customer. Once you are their customer, they can make it difficult for you to leave, with early repayment charges, and they also have your complete attention and can work on marketing to keep you as their customer.

Our role is to advise on the best discounted mortgage products for your circumstances to help you save money now but also to work with you over the long term, to ensure you can work the mortgage system to a point that will benefit you, but only if the discounted mortgage product is the right option for your circumstances.