Discount mortgages

UK Discounted Mortgages

Discount mortgages vary in term length from under a year to 10 years to term discounts. They work by offering a discount on a lender's SVR Standard Variable Rate. Once the interest rate goes up you will still pay a discounted rate but on the new SVR.

You may wish to opt for a Stepped Discount. This can help soften the blow of suddenly paying higher interest rates once your initial discount rate expires, as it undoubtedly will. This works by reducing the amount of discount over a certain number of years. So you may start with a discount rate of 2% and see that decrease to 1% to .75% a year after that.

These mortgages suit people who may need to look for cheaper initial payments whilst their salary is still low and then increase the monthly payments once their salary increases.

Discount mortgages often come with tie-ins or early redemption penalties that prevent you from re-mortgaging or swapping lenders for a set period of time. There are some discounts available without redemption charges but they are likely to offer a less generous rate.

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