Discount Rate Mortgage
As a way of attracting first time homeowners, mortgage dealers have devised a special discount rate package.
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The premise is simple. For a length of time established by the broker, you can expect to pay slightly less than the standard variable rate. If the current standard variable rate is hovering at 5.5%, and you have a discounted rate of 1%, you’ll only be paying 4.5% in interest.
If the standard variable rate rises, however, you can expect your discounted interest to do so too. This is a risk that applies to all mortgages with relation to the standard variable rate.
The reality of the property market landscape shows that competition is high and different companies are scrambling to get signatures on their dotted lines. This is rewarding for first time buyers because packages are being created to suit their current wants and needs.
A discounted rate will only last for so long before rising back to the standard repayment rate of the lender. If you’re considering such a package, you should take great care to predict your budget after the full repayments have commenced. Don’t get drawn in to the discounted rates, as they’ll only be there for a short period.
A discounted rate will usually last for one or two years. The longer it lasts, the less the discount will be. On the other hand, some lenders will offer short discount terms with a large percentage chopped off the interest. This can be particularly useful if you’re moving in to your new home and wish to spend the first year decorating and getting accustomed to the new environment.
If you’re feeling like trying your luck with a discounted mortgage, don’t fall under the assumption that you can ride the discounted period and then re-mortgage for a cheaper deal. In some cases, this is perfectly possible. But you should make the small print your best friend. Lenders aren’t particularly chirpy about first time buyers taking advantage of their “good will” and moving on to the next.
As a way to deter from short-burst re-mortgaging, many discount rate packages come with large repayment charges. So if you decide to change your mortgage when the discount is over, you could find yourself hit with a hefty financial blow. Don’t dip in to the discount market unless you can absolutely afford to pay the full interest rates of the lender. It’s important to look long term rather. Hopping and skipping from mortgage to mortgage has the potential to end in disaster.
Of course, some lenders are offering genuinely beneficial packages. If you’re a new homeowner and you can find the mortgage that you’d like with a discount attached, that should act as a brilliant incentive to sign up. Lenders are extremely competitive and many are willing to take a short term loss in profits to compensate for your signature.
The golden rule of a discounted rate mortgage is to look ahead. Forget about how much you might be saving over a one or two year period. Mortgages last a lot longer than that and you need to be able to keep up with the full repayments.
Save on repayments by using a discount mortgage by visiting our
mortgage centre
