Discounted Rate Mortgages

Offering discounted rate mortgages is one way in which lenders will attract in new customers. On mortgage rates tables, you will notice that there are a series of rates on display, the initial rate, the lender's standard variable rate (SVR) and possibly also the APR (or annual percentage rate of change). In the case of discounted rate mortgages, the initial rate (usually the most competitive of the three) will signal that the lender has provided a temporary discount on their standard variable rate. The APR is the most useful of the three rates for the purposes of mortgage rate comparison however, as it factors in the discount, the SVR and all other fees and charges over the life of the mortgage.

The Lender's SVR is loosely linked to the Bank of England base rate, and will usually remain several percentage points above it. At times like this where the base rate is low, the SVR will remain significantly higher, as the lender is under no obligation to pass on these rate cuts to their customers. Discounted rate mortgages are therefore also indirectly linked to the base rate, but they provide a little more security than tracker mortgages (which directly track the base rate) since the lender's rates are unlikely to fluctuate to the same extent. Discounted rate mortgages tend to last for perhaps two to five years, after which the SVR applies. It is advisable to shop around for a better deal once your discount is finished, since the lender's SVR rarely proves to be competition for the introductory rates in the market.

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Facts about Discounted Rate Mortgages

• Discounted rate mortgages are designed to attract in new customers, but before proceeding you should think carefully about your priorities over this initial period.
• Whereas other introductory deals, such as fixed rate and certain stepped rate mortgages, will ensure that you know exactly what you will be paying over the cost of this initial terms, you do not enjoy quite the same level of stability from discounted rate mortgages, because they will change according to the lender's standard variable rate.
• Therefore, if you value being able to budget more effectively over the possibility of saving some money on your monthly payments, it might be worth choosing an alternative.