Discounted Rate Mortgage

The Deal:

A discounted rate works in exactly the same way as a variable rate, however during the initial period, or in some instances throughout the lifetime of the mortgage, the lender will offer you a discount off the standard variable rate.

Advantages:

• Reduces the monthly mortgage payment at the outset
• It allows other costs associated with house purchase to be catered for in the early months or years
• Allows borrowers to take advantage of rate reductions

Disadvantages:

• Once the discounted period expires the rate returns to the variable rate meaning an increase in the monthly cost
• Larger discounts lead to larger increases
• Liable to redemption penalties which can be restrictive
• Exposure to interest rate rises

Suitability:

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

• Larger borrowing
• For those who feel interest rates will remain stable in the near future
• For those anticipating a salary increase in the near future