Discount rate mortgages
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Discount rate mortgages
When you’re shopping around for a mortgage, you’re probably keen to keep things as affordable as possible. If that’s the case, discount rate mortgages have probably piqued your interest. These mortgages offer an introductory discount on a lender’s Standard Variable Rate (SVR) for the first few years of your mortgage term, meaning your initial payments are lower. There are benefits to choosing a discount rate mortgage, but there’s also a risk or two, which is why it’s important to work with a dedicated team of mortgage broker experts.
At Everest Mortgages, we help you to find the ideal mortgage for your property purchase. If it’s a discount rate mortgage you’re looking for, we’ll guide you towards the right lenders, deals and terms, ensuring your borrowing works for you and your budget.
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What is a discount rate mortgage?
There are a lot of mortgage types out there, but discount rate mortgages grab a fair amount of attention. Let’s face it, it’s hard to deny the appeal of the word ‘discount’ and the promise of lower initial payments.
A discount mortgage is a type of variable rate mortgage, where the lender reduces its SVR by a set amount for a limited period, from the beginning of your mortgage term. This discount typically lasts two to five years, depending on the lender you choose. The reduced rate is commonly used by lenders to attract new borrowers, or to reward existing and loyal customers.
How does a discount rate mortgage work?
Mortgages are generally made up of capital and interest, meaning you repay the amount borrowed, along with the interest charged by the lender. With a discount rate mortgage, things work in a slightly different way. The discount applies to the interest portion of your repayments and, because the rate is linked to the lender’s SVR, your monthly payments can rise or fall depending on changes to that rate. When the discount period ends, your mortgage will revert to the lender’s SVR unless you switch to another deal.
Most discount products also include an Early Repayment Charge (ERC) during the discounted period. This means you might have to pay a penalty if you repay too much of the mortgage, move lenders or redeem the loan before the discount ends.
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The benefits of discount rate mortgages
Lower initial payments
The introductory discount often makes the starting rate of a discount mortgage cheaper than if you were to choose an equivalent fixed rate mortgage.
Benefit if rates fall
If your lender reduces its SVR, your interest rate also drops, which lowers your monthly mortgage payments.
Potentially lower fees
Some lenders offer discounted deals, with reduced fees compared to their fixed rate products, saving you more money.
More flexible charges
Early repayment penalties can sometimes be lower than those on fixed rate mortgages, giving you a bit of extra flexibility when it comes to charges.
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Who are discount mortgages best for?
There are a lot of mortgage options out there, but discount rate mortgages tick a lot of boxes, for a lot of people. If you’re comfortable with variable payments, you want lower initial costs and you believe interest rates may fall, a discount rate mortgage is worth considering. However, it’s important that you have some financial flexibility to cope with fluctuations.
At Everest Mortgages, we help you to narrow down your discount rate mortgage options and find the best lender, deal and terms for you.
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John is a CeMAP-qualified, whole-of-market mortgage adviser and Director of Everest Mortgage Services. With over 21 years in financial services, and a track record of 1,000+ mortgages arranged.
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