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First Time Buyers
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FAQs
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The Mortgage Point
Discounted Mortgages
Discounted mortgages are almost a mix of fixed rate and variable rate mortgage. The mortgage is a variable rate mortgage in principle but will usually have a period from 1 to 3 years where a certain percentage is discounted from the lender’s standard variable rate.
One of the biggest advantages is that as the lender’s standard rate rises and falls, your discounted rate still applies.
For example, if the standard variable rate increases, then you will pay the new standard rate, minus your discount, the same applies if the rate decreases. The Discounted Rate mortgage is a good solution for those who believe rates are about to fall as you could benefit from the rate decrease even more with the discount.
Discount mortgages are very attractive to first time buyers and those looking to make home improvements to their existing house as you will have a little extra money for decorating, remodeling your home or renovating the garden. This extra amount of money during the early years of your mortgage can be just what first time buyers need.
As lenders are taking more care over whom they offer their discounted mortgage deals to, they are increasingly charging arrangement fees, and it is also common for lenders to ask borrowers to pay charges if they are able to repay the loan before the end of the discount period. But similar charges also often apply to other products which offer discounted mortgage rates, such as tracker mortgages.
Borrowers should always take care to check that any savings offered by a discount mortgage deal are not swallowed up by these application fees.
Typically, discount mortgages are also only made available to applicants who can afford a higher than usual deposit, although for homeowners moving up the property ladder, this is not usually a problem as they will have sufficient equity in their home to meet the deposit requirements.