Discounted Variable Rate Mortgages
What is a Discounted Variable Rate Mortgage?
A discounted variable rate mortgage offers the same advantages and disadvantages as normal variable rate mortgages, but with an agreed discount on the interest rate for a set period of time, such as 2, 3 or 5 years. This helps keep the costs down in the early years of the mortgage.
You can get a discounted variable rate mortgage on an interest only or repayment basis. Go to our mortgage repayment calculator so see what the monthly payments would be.
Who Are They Suitable For?
Some deals are only available to first time buyers and can be particularly attractive, such as an interest-free period at the start of the mortgage
- A discounted variable rate mortgage gives you the benefit of any reduction in interest rates that your lender passes on.
- A discounted variable rate mortgage would allow you to benefit from interest rate falls. If you think that interest rates are high and likely to fall in the near future, this could be an important factor. Of course, your lender has to pass the cut on to its customers!
For the best current deals for around compare discounted rate mortgages best buys.
What Should You Look Out For?
There are some general things to watch out for with mortgages, as well as few specific pitfalls of discounted variable rate mortgages, which you need to understand before committing yourself:
- An early repayment charge or redemption penalty will be charged if you want to repay the loan before the end of the discount rate period. Usually, the earlier you repay, the more it will cost you.
- With a discounted variable rate, it is much more difficult to predict the future cost of your borrowing as your repayments can increase and decrease in line with market conditions. To help keep track of your monthly outgoings, take a look at our budget planner.
- Some discounted rate mortgages have a 'collar' which is the minimum amount that the rate can go down to, so you won't benefit from any rate reductions below this level.
- At the end of the discounted rate period, your lender will probably move you onto their standard variable rate. This could be considerably higher than your discounted rate, so you'll need be sure you can continue to meet your monthly repayments.
Make sure you understand the key factors to consider when you're sorting your mortgage out, these will help you to be certain that you're thinking about all the key questions to ask yourself.
Moneyfacts.co.uk has a range of guides on other types of mortgages from variable rate mortgages, fixed rate mortgages, to offset mortgages, self certification mortgages and buy to let mortgages.
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