Discounted Rate Mortgage
The Deal:
A discounted rate works in exactly the same way as a variable rate, however during the initial period, or in some instances throughout the lifetime of the mortgage, the lender will offer you a discount off the standard variable rate.
Advantages:
- Reduces the monthly mortgage payment at the outset
- It allows other costs associated with house purchase to be catered for in the early months or years
- Allows borrowers to take advantage of rate reductions
Disadvantages:
- Once the discounted period expires the rate returns to the variable rate meaning an increase in the monthly cost
- Larger discounts lead to larger increases
- Liable to redemption penalties which can be restrictive
- Exposure to interest rate rises
Suitability:
A discounted rate mortgage is the most suitable option in a number of circumstances the most common being those identified below:
- Larger borrowing
- For those who feel interest rates will remain stable in the near future
- For those anticipating a salary increase in the near future