What is a discount mortgage and how do they work?
A discount mortgage is a type of variable rate mortgage, meaning that your monthly payment can change from month to month. The interest rate is normally set below the standard variable rate. When the lender changes the standard variable rate, your monthly payment will move in line with that change. It can go up or down depending on what the lender decides to do with their variable rate.
What are the advantages and disadvantages of a discount mortgage?
The advantages are that you’re going to have a lower interest rate than those on the standard variable rate. If rates reduce, your monthly payment could decrease.
The disadvantage is that if interest rates go up and the lender increases their standard variable rate, then your monthly payment will go up too. There is no cap on how high it can go up, so your monthly payment could increase dramatically if interest rates do change.
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Who is eligible for a discount mortgage? How do I know if this is right for me?
Anyone can apply for a discount mortgage. What I would always suggest is speaking with a mortgage broker. We’ll work to understand your circumstances and establish if that is the right product for you.
But in essence anyone can apply for a discounted mortgage, it’s much the same as any other mortgage.
WHAT HAPPENS WHEN MY DISCOUNT MORTGAGE EXPIRES?
When your deal expires you will likely fall onto the standard variable rate which would be higher than your current deal. Your monthly payment would increase.
Instead, what you can do is secure a new product, normally around six months in advance of your current discounted rate ending. It’s best to discuss things with a broker who’ll be able to advise you on the best options going forward. That way, once that discounted rate ends you’ll go directly onto a new product. You won’t end up on the standard rate at all.
HOW DO I APPLY FOR A DISCOUNT MORTGAGE?
That’s where we can help. We will look at your circumstances and your priorities to get a full picture so we can recommend the most suitable mortgage for your needs. Under the current market, it definitely makes good sense to speak to a broker to find the right deal to suit your situation.
Not all lenders offer discounted mortgages and there are fewer of them available in the marketplace than fixed rates or tracker rates. If you go to your main bank they may not have a discounted mortgage available, so it’s always best to speak to a broker if you think that’s the product for you. We’ll be able to find the right solution.
