Discount Rate Mortgages explained and our available mortgage help...
Discount Rate Mortgages (or Discount Mortgages) are a type of mortgage where the lender's standard variable rate (SVR) is discounted by a certain amount for a fixed period of time.
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Here we explain more about Discount Rate Mortgages, how they work, their possible advantages and disadvantages, and how we may be able to help with a mortgage or remortgage.
Table of Contents:
What are Discount Rate Mortgages?
So, as outlined in the introduction, a Discount Rate Mortgage (or Discounted Rate Mortgage) is one whereby the standard variable rate of a lender is reduced by a certain amount for a period of time that is fixed.
For example, a 2% discount for 2-years would work thus:
- If a Mortgage Lender's standard variable rate is 6.7% at the outset of the mortgage, the rate of interest initially charged would 4.7% for two years (6.7% less the 2.0% discount), assuming that the standard variable rate remained the same.
- If during the two year discount period the standard variable rate rose by 1.0%, the discount rate would rise to 5.7% (6.7% + 1.0% = 7.7% rate rise less 2.0% discount) whilst the standard rate remains at 7.7% (6.7% + 1.0%)
- Conversely, if during the two-year discount period the standard variable rate fell by 1.0%, the discount rate would fall to 3.7% (6.7% - 1.0% = 5.7% rate drop less 2.0% discount) whilst the standard rate remains at 5.7% (6.7% - 1.0%).
At the end of the two-year period, the interest rate reverts to the lender's standard variable rate at that time.
The advantages of discount rate mortgages
Discount Rate Mortgages can be particularly useful where the borrowers are buying a home for the first time, and can therefore benefit from lower rates during the early part of the home buying process.
The disadvantages of discount rate mortgages
Generally, a Shire Direct mortgage advisor would suggest a degree of caution be exercised when considering a discounted rate mortgage product, for two reasons:
- a potential payment shock at the end of the discount period when rates revert to the standard variable rate norm, and
- the fact that some lenders will generally incorporate an early repayment charge (ERC), at least during the preferential discount period.
Nevertheless, discounted rates need not be cumbersome, and many mortgage payers can benefit by switching away from a standard variable rate mortgage to a discount product. For example, the 2.0% discount for 2 years on a £100,000 mortgage, would amount to £4,000 over the two year period!
Further advice, help and information on Discounted Rate Mortgages
Hopefully, we've managed to answer your initial questions about Discount Mortgages. If you are thinking of applying for a mortgage or remortgage, and require our assistance, we would of course be delighted to hear from you! You can speak with a qualified Mortgage Advisor here at Shire Direct up until 10.00pm everyday (including the weekends) on our Freephone telephone number 08000 282 281, or you can contact us online anytime!
The overall cost for comparison is 9.8% APR.
The actual rate available will depend upon your circumstances. Ask for a personalised illustration. APR variable and based on a usual case. Most customers are likely to receive a lower rate or the same rate as our overall cost for comparison rate - learn more about APR.
There are no upfront broker fees.
However, a fee may be charged on successful completion. An indication is that on conforming cases (straightforward applications with no or minimal adverse credit) a fee may be charged of up to 1% of the amount advanced, typically £795 and will depend on your circumstances.
For non-conforming cases (where case research and processing may be more complex due to adverse credit or unusual circumstances), a fee may be charged of up to 3% of the amount advanced, typically £1,995.
THINK CAREFULLY BEFORE
SECURING OTHER DEBTS AGAINST YOUR HOME.
YOUR HOME MAY BE REPOSSESSED
IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
Adding existing debt to your mortgage will increase the repayment term and overall cost.
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