Discounted Mortgages Explained

• Lenders offer you the option to reduce the interest rate applied to your loan by a set percentage. The reduction will be directly linked to the lender’s variable rate, and will usually apply for the first few months or years of your mortgage term.

• Increases in the mortgage rate will therefore affect your loan although the discount will still apply until the end of the agreed period.

• Bigger discounts are frequently offered if a larger deposit is being provided by a borrower, and to those taking out larger loans.

• Certain lenders will include some element of cashback.

• Usually the loan will stipulate that the borrower will be penalised should he transfer the mortgage or repay part of the loan early for a set period.

• Reducing the monthly costs at the outset allowing other costs associated with house purchase to be catered for in the early months or years.

• Allows borrower to take advantage of rate reductions, as the discount will be applied to the newly reduced variable mortgage rate.

• Once the discounted period expires the rate returns to the variable, meaning an increase in the monthly cost – Larger discounts lead to larger increases.

• Incorporated early repayment charges can be restrictive.

• Exposure to interest rate rises.

• A discounted rate mortgage is the most suitable option in a number of circumstances the most common being those identified below.

• Individuals on tight budget expecting wage increases over the first few years of the mortgage.