What Are Discounted Mortgages?
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- Moving home is basically the same as moving into your first home, in mortgage terms. You are free to find yourself another mortgage with either your existing lender or another lender – and can shop around for the best deal on the market.
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- Your first mortgage will be the most significant financial undertaking of your life so far, but how exactly do you go about getting a mortgage?
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- Cashback Mortgages provide you with a lump sum of cash upon completion of the property purchase, either as a percentage of the mortgage or a fixed sum.
- What are Variable Rate Mortgages?
- A variable rate mortgage is when you pay a standard variable rate (SVR) that changes in line with the Bank of England's base rate. The SVR is usually between 2% and 4% higher than the Bank of England's base rate, but this will vary from lender to lender.
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- If you have mortgage payments that have not been made by the due date in accordance with the mortgage deeds, you will have gained a bad credit history on your credit report. This may hinder you when trying to obtain further credit such as a credit card, loan, or another mortgage.
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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