Discounted Rate Mortgage
Mortgage options
A discounted rate type mortgage is available from some lenders and will offer you a discount on the variable rate of interest charged.
This discount will only be for a limited period which is decided by the mortgage lender at the outset of the mortgage loan.
At the end of the discounted period the interest rate will revert to the current variable rate of interest at that time as determined by the lender which may not be as competitive as standard variable rate mortgages on offer from other lenders.
A discounted rate mortgage usually has early settlement charges or if you want to change to a different type of loan during the discount period so you should be clear what these penalty charges are before you commit to borrowing the money on a discounted rate type mortgage.
A discounted variable rate mortgage is a deal offered by lenders to ‘tempt in’ borrowers by offering a discounted rate off their standard variable rate for a set period. Your repayments will fluctuate in accordance with the variable rate set by the lender as determined by the. You will artificially pay a lower rate for the set period and this will revert to the standard mortgage lenders variable rate after the discounted period comes to an end.
It is wise to ask your mortgage advisor to give you advice on the track record of lenders who offer a discounted rate and see what average terms they tend to revert to after the discounted period. Once this honeymoon of a discount is over you may find yourself locked into a rate of interest that is much higher than the standard variable rates offered from other lenders.
It does pay to review your mortgage every 2 or 3 years to make sure you have the best deal as rates on offer will vary a great deal but you should ask if there is a penalty charge for early settlement, it does pay to shop around.
The discounted deal is normally offered for a 2 year period and you probably don’t want to be tied down for a longer period than that. Some lenders will impose a penalty charge should you decide to transfer your mortgage after the discounted period and certainly during the period so it pays to ask and be sure you fully understand the implications of the discounted rate on offer.
A discounted mortgage rate is a worthwhile option providing you are aware of any penalty charges and the track record of the lender when it comes to reverting the loan to their standard variable rate increases. If you remember that the discounted rate offered by the lender is designed to be bait to tempt you in so you have to be sure that the bait doesn't end up costing you a lot more in your mortgage repayments after the discount period has come to an end.
You should always take advice before you commit yourself to borrowing from a lender with a discounted rate term mortgage.
