A discount rate mortgage charges an interest rate that is linked to a lender's standard variable rate (SVR) - and it will be reduced by a specific amount for an agreed period of time.
During the agreed discount period the interest rate charged can go up and down if the SVR of the lender changes. Therefore, if the SVR goes up, your payments will rise and, likewise, they will fall if the lender's SVR goes down. The interest rate that you pay will always, however, be reduced by the exact discount rate agreed at the start of the discount period.
At the end of the discount period, the mortgage will revert to the lender's standard variable rate and your payments will increase.
Discount rate mortgages can be useful if you expect to have more money available to spend on your mortgage at a specific time in the future i.e. when the discount rate will end. You should always make sure that you can afford the payments at the end of the discounted rate period and also that you have factored in potential rises in interest rates during the discount period.
Select from the list below to find out more about the different types of mortgages or call us for a no obligation chat on 0845 413 1050.
Charcol is not authorised to offer investment advice. We recommend you seek professional advice with regard to these topics if you believe they may affect you.