Discount mortgages are a type of variable-rate mortgage. They work by offering a discount based on how low the interest rate is below a lender’s standard variable rate or SVR for an agreed amount of time. A Discount Mortgage is calculated with the discount rate being subtracted from the lenders SVR, thus resulting in the rate of pay.
In terms of the benefits, a discount mortgage ensures for that a buyers rate will always remain below a lender’s SVR for the length of the deal. In certain economic circumstances, a discount mortgage can ensure a very low rate of interest.
As a drawback, discount mortgages certainly do not offer the stability of a fixed-rate mortgage, as buyers have no control over what the lender’s SVR is at any certain time. For those on a tight budget, needing repayments to stay the same from one month to the next, it may make more sense to choose a fixed-rate mortgage.
It is also worth considering, that attempting to pull out of a discount before the end of a deal period may incur early repayment charges. At Just Mortgage Brokers we can provide professional advice on all types of mortgages, including specialist lending such as commercial mortgages, adverse credit mortgages and buy to let mortgages.