Fixed v Discount Mortgages

A mortgage is probably one of the largest financial commitments you will ever take on in your life, and for this reason it is important that you put plenty of thought into deciding which mortgage is right for you.

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There are many different types of mortgages on the market today, ranging from variable rate and fixed rate mortgages to tracker mortgages, discounted mortgages, offset mortgages, and more.

The world of mortgages can be something of a minefield for those with little knowledge or experience of how mortgages work, and therefore it is important that you do your research thoroughly, and if necessary seek independent financial advice in relation to your mortgage before making a commitment.

If you rush into taking out a mortgage and end up with an unsuitable mortgage type you may find that if you then want to switch to a different lender or a different type or mortgage you could be hit with hefty fees, so this could work out to be costly.

Making the right decision on your mortgage from the start can save you time, hassle, and money in the long run, and can provide you with peace of mind, as you will be able to choose a mortgage types that fits in with your needs, your pocket, and your circumstances.

Amongst the popular types of mortgage available today are fixed rate mortgages and discounted rate mortgages. These are mortgages that are quite different in terms of repayment, and each will suit different people, needs, and circumstances.

There are pros and cons to both of these mortgage types, and by weighing these up you can make a more informed decision with regards to which of these two mortgage types may best fit in with your needs.

A discounted mortgage is a type of variable rate mortgage, and this where the lender offers a discount of a certain amount on the lender’s standard variable interest rate for a specified period of time. For example, the lender may offer a mortgage with a discount of 2% on the standard variable rate for a period of two years, which means that whatever the base interest rate and lender’s standard variable rate moves to, you will continue to pay 2% below the SVR.

You will continue to get 2% discount off the lender’s SVR for the period specified by the lender, at the end of which you will either switch back to the standard variable rate or you can consider another discounted mortgage.

A fixed rate mortgage is, as the name suggests, fixed in terms of the interest rate for a specified period. Fixed rate mortgages are usually set slightly higher than the standard variable rate, but no matter what happens with the interest rates your interest rate will not change throughout the term of the fixed rate period.

You will make the same repayments each month and therefore you can enjoy easy budgeting and peace of mind, as you won’t have to worry about repayments going up.

One of the pros of a discounted mortgage is that when interest rates fall, your mortgage rate will also fall to 2% under the lower standard variable rate. However, on the downside, when interest rates rise, yours will also rise, although it will still be 2% lower than the new, higher standard variable rate.

One of the main benefits of a fixed rate is that it offers financial stability and peace of mind, because you always know what your monthly repayment will be throughout the fixed rate period, and even if interest rates shoot up yours will remain the same.

On the downside, if interest rates fall you will still be paying the higher interest rates, so you will not benefit from the lower repayments that come with a reduction in interest rates.

Search for the latest and best mortgages by visiting our
mortgage centre