Discounted Mortgages
Discounted mortgage – Attractive because of the size of the discount on the Basic Rate, discounted mortgages are similar to a tracker, but the rate is set by the mortgage lender, not the Bank of England. As such, the borrower is a hostage to fortune, but it is in the lender’s interests to make the discount (on its Standard Variable Rate, which is often different to the Bank of England’s Base Rate) attractive to a borrower.
Discounts usually mean that you pay an attractively low initial rate. This then rises (being subject to the lender’s SVR) along with any increases announced by the Bank of England.
If you have enough flexibility in your budget and feel confident that interest rates will stay low enough for you to afford the repayments, then a discount mortgage is worth considering.
Discounted mortgages – pros and cons:
PROS:
- Attractive low starting rate.
- Unlike fixed rate mortgages, discounted rates can fall if interest rates are cut.
CONS:
- Not recommended for people on a tight budget or who are stretching to afford their property.
