Discount Mortgage
If you are searching for a mortgage that is suitable for you and your needs, there is one type of mortgage that you may want to consider, a discount mortgage. A discount mortgage is a mortgage with an interest rate where a discount is applied to the rate on the loan. The discount is applied to the lender’s standard variable rate for a set length of time. The length of time can vary from three months to several years. Because it is a variable rate, the interest will rise and fall with the Bank of England’s base rate. As the standard variable rate fluctuates up and down, so will the discounted rate. A lender will offer you various discounts on the interest rate of the mortgage.
A discount mortgage can be beneficial if you are purchasing a home for the first time, as you can use the money that you are saving with the discounted interest rate to purchase new furniture or to help you redecorate your home. The longer the discounted rate period is, the more you will benefit, so it would be wise to ask around to ensure you receive the best rate as well as the best discount on the mortgage.
With discount mortgages, early redemption penalties almost always apply and could extend beyond the discounted period. This means that you could end up tied into a mortgage with uncompetitive rates once the discount on the interest rate expires and it reverts back to the lender’s standard variable rate. If you change your mortgage during the early redemption penalty period, you will have to pay a fee that can be as much as six months repayments on the mortgage. It will pay off to search around and compare offers from various lenders.