Discount Variable Rate Mortgage
Discounted Variable Rate Mortgages explained
A Discounted Variable Rate Mortgage has an interest rate where a discount is applied to the lenders standard variable rate for a set period. As the lenders standard variable rate moves up or down the discounted rate moves up or down by the same amount.
Discounted rate mortgages are often offered for a set period of time usually two years, though some mortgage lenders now offer discounted rates up to 3 and 5 years.
Comparing Discounted Rate Mortgages
When you compare discounted rate mortgages it is important to check that the cheap discounted rate mortgages do not have an extended redemption penalty period. Extended redemption periods prevent you from the flexibility of changing you mortgage without being charged a redemption penalty. They also could tie you to the mortgage lenders variable rate for a number of years after the discounted rate period ends.
Advantages and Disadvantages of Discounted variable rate mortgages
- Lower interest rate in the discounted period.
- Your mortgage payment will reduce when there is a fall in the lenders standard variable rate.
- Early redemption penalties can be onerous and expensive.
- You may have to pay an application fee when arranging your discounted rate mortgage.
- At the end of the discounted period your mortgage payments will increase as the mortgage reverts to the lenders standard variable rate.
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