Everyone likes a discount. Saving money here and there can make a huge difference to homeowners who may be looking to clear their debts or make home improvements.
Discount mortgages may offer homeowners a good deal on their mortgage (for a fixed period at least). Read on to find out more about how discounted mortgages work.
A discounted mortgage is a variable rate mortgage which charges a certain amount of interest for a fixed period.
The discounted rate, typically, will be slightly less than the lender’s Standard Variable Rate (SVR) and available for two to three years. However, there are Lifetime Discounted Mortgages on offer, where you stay on the discounted rate for the entirety of the mortgage term. Once the initial discount period is completed, your mortgage may automatically switch to the lender’s Standard Variable Rate.
Alternatively, a discounted mortgage may offer a discount on some of the fees associated with taking out a mortgage.
Discounted deals are offered on many types of mortgage including fixed and tracker mortgages. You apply for a discounted mortgage in the same way as any other mortgage. However, with some discounted deals, the mortgage fees may be included in the mortgage loan, which means you don’t have to pay the fees up-front.
Take a look at our Guide to Getting your First Mortgage for more on the costs of taking out a mortgage.
Belinda and Harry are buying their first home and are looking for the cheapest deal available to them. The house they want costs £150,000 and they have found a good mortgage plan. For the first two years, they pay a rate of 3%, which equals a monthly mortgage payment of £711. At the end of the two-year period, their rate switches to the lender’s SVR Rate which is currently set at 5%. This means that in two years’ time, their monthly repayments will increase to £877 per month.
Fixed Mortgage – These mortgages can offer more security than a discounted mortgage, as you will always know how much your mortgage costs per month. Whereas with a discounted deal, this rate can change.
Tracker Mortgage – If you’re looking for a low rate of interest, a mortgage which tracks the Bank of England Base Rate may be a better option for you.
Capped Mortgage – These mortgages have an agreed upper limit on the percentage of interest you will pay a month. The interest can fall below and, as a result, you will pay less interest. These mortgages can be great for people who want access to lower rates of interest, but need a degree of security too.
If you’re thinking about taking out a discounted mortgage, get in touch with an independent mortgage broker. They offer a free quote service and can help you find the best mortgage deal for your needs.
My biggest concern was finding a mortgage with no strings attached. My options were clearly explained to me and I felt confident about the decision. Alice Silverman, Stoke-on-Trent
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THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
IF YOU ARE THINKING OF CONSOLIDATION EXISTING BORROWING YOU SHOULD BE AWARE THAT YOU MAY BE EXTENDING THE TERMS OF THE DEBT AND INCREASING THE TOTAL AMOUNT YOU REPAY.
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