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Mortgages are available in a number of different interest rate options, one of which is the discount rate mortgage.
In today's competitive environment, many providers offer an initial discounted rate for first time buyers and others. This takes the form of a limited period reduction in the normal variable interest rate by say, 2% for a year or 1% for 5 years. This means that whatever the variable rate is during the discount rate period, the borrower will pay the variable rate less the discount percentage, thus making a saving. At the end of the discount period, the rate reverts to the lender's prevailing variable mortgage rate. Discount rate mortgages like most are usually subject to early repayment charges if the borrower withdraws from the mortgage early, and can in some instances continue for a period after the initial discount period has ended.
In general, the shorter the period of the discount rate mortgage, the higher the discounted rate will be. For example, if you have a two year discount, you may get a discount of 1% of the standard variable rate, but a one year discount could be 2%.
Discount rate mortgages can be recommended for those where it is important to keep their initial payments as low as possible. Perhaps because it is their first mortgage, their income is tight or they wish to have spare disposable income at the end of each month to spend on furnishing their home or on car repayments.
Discount rate mortgages
You should always check to see if the discount rate mortgage has an early repayment charge for changing mortgage after your discounted period has ended as in most cases borrowers will look around the mortgage market to see if they can move to another discount rate mortgage retaining a lower monthly mortgage payment in comparison to the lenders standard variable rate.
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 which will result in a significantly higher monthly mortgage payment.
An example of the criteria for a discount rate mortgage is:
Income Multipliers of 4.5 x the first salary + 1x the second salary or 3.5 x joint salaries. Self certification discount rate mortgages are available in some cases.