Discounted
Mortgage Rate
This is
a variation on the Standard
Variable Mortgage Rate.
In
order to maximise their business, the lenders will offer a discount
off the standard variable mortgage rate and apply the discount for a
period of time. The borrower's monthly payments will alter to reflect
the change in the lenders standard variable mortgage rate but will
stay a margin below.
Although
a discounted rate means fluctuating payments, a big advantage is that
from day one the borrower knows by how much the mortgage will increase
on the day the discount ends. In other words, if the discount is for
example 1% off the rate, and this represents a saving of £75 a
month, then when the discount ends the payments will increase by £75,
irrespective of any other movements in the meantime.
In
addition it is common for the lenders to offer these rates without
charging any arrangement fees, though not always. Furthermore
discounted rates are usually the lowest rates in the market at any
given time.
So if,
as a borrower, you believe that the economy is going to remain fairly
stable in the foreseeable future, and as a result there should be no
need for the Bank of England to increase base rates, then a discounted
rate will look a good bet.
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