Discount Mortgages

Discount mortgages have variable interest rates that moves roughly in line with the lender’s Standard Variable Rate (SVR).

The discount from the SVR is genuine and will normally apply for a set period of between one to five years for discount mortgages.

Once the discount period expires the interest rate will convert to the lender’s SVR.

Because the discount rate is variable, any change in the SVR will affect the mortgage’s interest rate and the amount of monthly repayments due.

The lender’s SVR will normally reflect changes to the Bank of England Base Rate (BoEBR), although this is not a requirement.

Discount Mortgages are popular with first-time-buyers who cannot afford high mortgage repayments during the early years of homeownership.

Despite this advantage, there are several disadvantages to consider.

Discount Mortgages often come with stringent terms and conditions, including long tie-in periods and costly early repayment charges.

Borrowers should therefore look beyond the discounted interest rate when assessing whether to apply for such a mortgage.