What Are Discounted Mortgages?

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How long are mortgages usually for?: As with any loan, you can choose to take your mortgage out for any amount of time – however the norm is 25 years.
How Is Interest Calculated On a Mortgage?: Interest is charged in different ways depending on what kind of mortgage you have.
What Happens If Interest Rates Change?: If you have some form of fixed interest rate mortgage you will be unaffected by changes in interest rates. Otherwise you can expect a change in the rate of interest charged on your mortgage.
How Do I Switch Mortgages?: Switching mortgages (remortgaging) has been made very easy by the industry, in reaction to the fact that most people remortgage their homes on a regular basis i.e. every 5 years on average.
What Are Capped Rate Mortgages?: A capped rate mortgage puts a limit on maximum interest payable on your mortgage over a predetermined period. If the mortgage rate is BELOW the cap the borrow will enjoy the lower interest rate available.

Discounted rate mortgages take the lenders standard variable rate and apply a discount. By applying the discount it allows the borrower to reduce the interest rate on the loan for a set period of time. Whilst the lenders variable rate will fluctuate up and down the discounted rate will stay the same until the period of discount has elapsed.

Discounted mortgages offer discounted periods from as small as six month up to about five years. Typically, if you take a shorter period of discount the discount over that period will also be greater.
E.g. for a discount period of two years, the lender may give you a discount of 1% of the standard variable rate, but a one year discount could be 2%.

Discounted mortgages are particularly advantageous for people who need to keep their initial payments as low as possible. Often they chose a discounted mortgage because it is their first mortgage and their income is insufficient to easily manage the living costs and their repayments. Perhaps the borrower simply wishes to have some spare cash to spend, perhaps on furnishing their new home or even on car repayments. A discounted mortgage can help you to achieve this.

Discounted mortgages are also particularly good for remortgaging borrowers. A remortgage is when you swap mortgage lenders within your mortgage term. By swapping mortgage lenders at the end of the discounted period you will be able to enjoy the lower, discounted rate each time you swap lenders.

However, if you don't remortgage, and you do nothing after the pre-determined discount period, you will revert to the standard variable rate for your chosen lender.

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