discount rate

What is it?

With a discount mortgage you pay less than your lender’s standard variable rate (SVR), for a set period of time. Typical discount periods last two or three years.

Discount trackers which follow your lender’s tracker rate are a widely available mortgage product as are stepped discounts, where the discount you enjoy decreases gradually in two or three steps.

What does it offer?

A discount mortgage can offer better value than a fixed rate because it tracks the SVR. If this falls, the reductions will be passed on to you.

When is it worth considering?

A discount mortgage is an attractive option if you expect interest rates to remain static or fall, or if you believe the premium you pay for a fixed or capped rated is excessive.

A discount mortgage is also worth considering if you want low initial payments. If you are a first-time buyer, a discount mortgage might help you free up sufficient cash to meet the costs of setting up your new home.

What should I be aware of?

Generally, the bigger the discount, the shorter the period you are likely to enjoy it for.

With a discount mortgage you’ll benefit from future falls in interest rates but you’ll also pay more if rates rise. If your budget is tight and it looks like interest rates could go up sharply, a fixed rate mortgage might be better option.

With a discount mortgage early repayment charges usually apply for the period of the offer. If the discount rate seems particularly generous it may be because penalties also apply once the offer period has ended.