Discount mortgages over the past few years have proven very popular in the UK for re-mortgages and property purchases as interest rates are generally quite low and stable. Although past indications cannot guarantee future trends.

They work by having for the period “discount period” a set percentage discounted from the standard variable rate or bank base rate usually from the standard variable rate or the bank base rate. So if the Bank of England increases the base interest rate or falls, the lender will usually adjust the mortgage rate they get, but the agreed discount on the product will apply to the revised rate until the end of the incentive period. Then the rate will return to the lender’s standard variable rate.

What Is a Mortgage Par Rate?

For the discount period the prepayment fee usually applies this can apply for the duration of the discount period or they may apply for a period beyond this date. Some discount offers may have steps in them so maybe for the first year the discount rate will be very attractive then reduce the discount rate every year until the end of the total discount period. Known as stepping discounts. Many lenders for remortgaging offer legal fees and free appraisals, although generally there are lender fees that can be charged up front or added to a home loan on settlement.

Mortgage Interest Rates

Discount offers can potentially help you reduce your monthly mortgage payments. Discount mortgage offers aim to reduce monthly mortgage payments for a specified period (i.e. discount period) thereby helping clients with their monthly budget. Caution must be taken because the tariffs with this product are not protected from going up.

Although care must be taken if the loan is stretched and unable to pay for increased rates for example first time buyers if they decide to move they may find their initial payment costs high and they may be bound by an interest rate deal that is not competitive for some time. There may also be a high jump in monthly payments when the discount period ends and a return to the lender’s higher standard variable rates.

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