Discounted Rate Mortgages

Discounted rate mortgages are standard interest-only or repayment mortgages, but the interest rate is discounted for a set period of time. The interest rate that you are charged is a 'discounted variation' of the standard variable rate, which means that although it will rise and fall along with the standard rate, it will always be lower (typically by a set amount such as one percent). After the agreed period of time (sometimes referred to as the promotional period), the standard variable rate will usually apply. This means that it is important to check the lender's standard variable rate if you are interested in accepting their discounted interest rate, because you will usually be required to pay the standard rate for a number of months after the promotional period has ended, especially since there is often a penalty charge if you decide to switch lenders shortly after the promotional period has elapsed.

This considered, you should aim to negotiate a short fixed term, such as two years. This is because once you are tied to a particular deal, you are not able to switch lenders and obtain a better deal until the 'penalty period' has ended. The lender's standard variable rate is always more expensive, which means remortgaging to obtain a lower interest rate is often the best option to reduce the overall cost or your mortgage. If you are forced to stay with your lender because of an early repayment fee, you should try to ensure that you budget correctly for the increased interest charges once the promotional period ends: if you cannot afford the new monthly repayments, your home may be repossessed.