The Discounted interest rate used to be a very popular option to consider, but more recently the Base Rate Tracker has become a more popular choice, with similar attributes.
A Discounted Rate offers a discount from the Standard Variable Rate (SVR) for a given period of time – usually 2 – 5 years. E.g. A Lender may offer a Discounted rate of 1% for the first 2 years. That means your interest rate would be 1% less than your lender’s SVR for the first 2 years of your mortgage. At the end if the discounted rate you should review your mortgage to ensure that you continue to benefit from a competitive rate – please do call us and we will be happy to help!
If the SVR increases during your discounted period (or after) then your mortgage interest rate will also increase by the same amount. See the diagram below for an example
Please note the graph below is for illustrative purposes only.
Some lenders offer what is known as a stepped discount. Which is a similar principle to that of the discounted rate above, but the amount of discount may be different each year. An example of this type of product is a 3 year stepped discount may operate on the basis of a 3% discount year in 1, 2% discount in year 2 and a 1% discount in year 3.
If you have a Discounted Rate and interest rates fall, then your monthly mortgage payments will also fall.
If interest rates rise, then your monthly mortgage payments will also rise.
Once again, at the end of the discounted rate we will be happy to review the mortgage for you to ensure that you obtain another competitive deal!
Top Tip: The difference between Discounted and Fixed Rates varies all the time, so it is very important to weigh up market conditions and expectations BEFORE committing yourself. For friendly, plain speaking advice, please contact one of our expert mortgage advisers today on 01271 346123.