Normally, discount rate mortgages are when a discount is offered on a standard variable rate (SVR) mortgage.
While this sounds good, beware that the discount is off the SVR set by the bank, which varies between lenders. You may find that the discount rate offered to you by one bank is actually a percentage point or two higher than another bank’s SVR, so you need to shop around. Don’t just look at the discount rate, but look at the SVR too.
Generally discount rates don’t last long, often just two or three years. The key information to look for is the starting rate you pay, and then what SVR you would end up paying once the discount rate stops.
Advantages of a discount mortgage
Your rate will probably fall if interest rates are cut, and the discount rates should in theory by cheaper than the underlying rate, (e.g. the SVR).
Disadvantages of a discount mortgage
There is a fair amount of uncertainty surrounding these mortgages, so you need to decide on if you want to take the risk of rates rising, or prefer a fixed-rate offering greater peace of mind, for example.
You are at the mercy of lenders, because the discount is off their SVR. If they decide to increase their rates then you will have to pay more.
Mortgage Repayment Calculator
If you are worried about figuring out your bills per month, this useful little calculator can help you out.
Simply enter the total mortgage loan you took out from the bank, the interest rate they offered you in the deal, and the amount of time in which you have to pay it back in.
The calculator will give you two values. Firstly, the total amount you will have to pay back each month including the interest rate. And secondly, the interest rate by itself so you can see how much that costs.
Be aware that this calculator does not take into account any additional costs the lender may charge for their service.