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Discounted mortgages are a great way to get a competitive rate on your mortgage, and can often be found with some of the biggest lenders in the UK. A discounted mortgage is where the interest rate is reduced by a set amount from the lender's Standard Variable Rate (SVR) for a limited time.
Discounted rates are usually offered for a period of two or three years, after which the mortgage reverts to the lender's SVR. This means that it's important to remember that your monthly payments will go up at the end of the initial discount period.
When you're looking for mortgage advice, it's not always easy to know where to start. At Echo Finance, we've helped countless people to secure the right mortgage for their needs, and we're always on hand to offer support and advice.
If you're thinking of taking out a discounted mortgage, we can help you to compare deals from a wide range of lenders and find the right option for you. We can also provide guidance on how to make sure you don't overstretch yourself, and explain the implications of reverting to the lender's SVR at the end of the discount period.
Get in touch with us today to find out more about discounted mortgages, and how we can help you to secure a competitive deal.
What is a discounted mortgage?
A discounted mortgage is where the interest rate is reduced by a set amount from the lender's Standard Variable Rate (SVR) for a limited time. For example, if a lender's SVR is 4.5% and the mortgage has a two-year discount of 1%, the interest rate on the mortgage would be 3.5% for the first two years.
As they are linked to the lender's Standard Variable Rate, which is variable by nature, your interest rates and monthly payments could go up or down during the discount period. For this reason, it's important to pay attention to the Bank of England Base Rate, as this will have an impact on your mortgage payments.
Discounted mortgages can be a great option if you're looking for a lower interest rate over a set period of time, giving you some breathing space to get on top of your finances. However, it's important to remember that your payments could go up as well as down, so it's important to have a plan in place in case rates do start to rise.
It's also important to note that some discount mortgage deals come with a 'collar'. This is a lower limit on how much the interest rate can drop to, regardless of changes to the Bank of England Base Rate or the lender's Standard Variable Rate.
What are the benefits of a discount mortgage?
There are several benefits that come with taking out a discounted mortgage, including:
- A lower interest rate over a set period of time, which can help you to reduce your monthly payments and get on top of your finances.
- If interest rates fall, you could benefit from lower payments for the duration of the discount period.
Of course, every mortgage comes with its own risks and it's important to remember that your monthly payments could go up as well as down. It's important to have a plan in place in case rates do start to rise, and to make sure you're not overstretching yourself financially.
If you're thinking of taking out a discounted mortgage, we can help you to compare deals from a wide range of lenders and find the right option for you.
What are the risks of a discount mortgage?
As with any mortgage, there are some risks that come with taking out a discounted mortgage. These include:
- Your monthly payments could go up as well as down, so it's important to have a plan in place in case rates do start to rise.
- If interest rates rise, you could end up paying more than you would with a fixed-rate mortgage.
What is the difference between a discounted and a tracker mortgage?
A tracker mortgage is where the interest rate is linked to the Bank of England Base Rate, meaning it will move up and down in line with changes in the base rate.
A discount mortgage, on the other hand, is where the interest rate is reduced by a set amount from the lender's Standard Variable Rate (SVR) for a limited time.
Who are discount mortgages suitable for?
Discount mortgages are usually taken out by people who are comfortable managing their own finances and feel confident that they can make the repayments each month.
They're also a good option if you have a decent amount of equity in your property, as this will give you more room to manoeuvre if interest rates rise.
If you're not sure whether a discount mortgage is the right option for you, our team of expert mortgage brokers can help. We'll take a look at your individual circumstances and find the best deal for you, from a wide range of lenders.
How long is the discounted period?
The length of the discount period will vary depending on the mortgage deal you choose. Deals typically range from two to five years, although some lenders may offer longer periods.
It's important to remember that, at the end of the discount period, your interest rate will revert to the lender's Standard Variable Rate (SVR). This is usually much higher than the discounted rate, so it's important to have a plan in place to make the necessary financial adjustments.
If you're thinking of taking out a discount mortgage, we can help you to compare deals from a wide range of lenders and find the right option for you. Get in touch today.
Do Discount Mortgages have early repayment charges?
Yes, some discount mortgages come with early repayment charges (ERCs). These are typically levied for the first few years of the mortgage term and can be expensive if you need to remortgage or sell your property during this time.
It's important to check the small print of any mortgage deal you're considering to see if it comes with an early repayment charge and to factor this into your plans.
What is the minimum deposit for a Discount Mortgage?
The minimum deposit for a Discount Mortgage will depend on the lender and the deal you choose. However, as a general rule, you will need to have a deposit of at least 5% to 20% of the property value in order to qualify for a mortgage.
Arrangement fees on Discount Mortgages
Most discount mortgage deals come with an arrangement fee, which is charged by the lender for arranging the mortgage. This can range from a few hundred pounds to several thousand, so it's important to factor this into your plans when budgeting for your mortgage.
Speak to an expert
At Echo Finance, we're a whole of market mortgage broker, which means we can compare deals from a wide range of lenders to find the right one for you.
We have a team of experienced mortgage brokers who are on hand to answer any questions you might have about taking out a mortgage. Get in touch today to speak to one of our experts.
Find your local adviser
Frequently Asked Questions
Below you will find the answers to the questions we hear most often from Echo Finance customers:
A mortgage broker, or a mortgage advisor, is an intermediary who acts as a conduit between an aspiring borrower and a lender. It is their job to provide the mortgage applicant with impartial advice, help them choose the right product and arrange the deal with the lender.
Brokers provide services including advice on which type of mortgage to choose, providing access to exclusive rates through their lender contacts, and application support. Some can offer advice on all areas of the mortgage market, while others specialise in niche fields such as buy-to-let, bad credit, commercial finance, first-time buyers or self-employed borrowers.
People choose to apply for their mortgage through a broker because it can boost their chances of finding the right deal, while saving time and money in the long run.
- Residential mortgages: Everything from fixed-rate to tracker mortgages for first-time buyers, homemovers and remortgage borrowers
- Specialist mortgages: For borrowers who fall outside of standard lending criteria, including people with bad credit, self-employed professionals and more
- Later-life lending: Including advice on equity release, mortgages for pensioners and retirement interest only (RIO) mortgages
- Bridging & Commercial: We have specialist advisors on hand for commercial mortgages, bridging loans, development finance and more
- Insurance & Protection: Including life, home and critical illness cover for families and individuals, as well as landlord and business protection insurance
Echo Finance is regulated by the Financial Conduct Authority and is reviewed annually by an independent compliance company. All of our brokers and advisers hold industry-standard qualifications, such as CeMAP, CeRER and DipMap, where required.
We are committed to providing advice through the channels that best suit your needs. Our brokers can provide advice via phone, email, video and web chat from anywhere in the UK, but we also aim to offer face-to-face appointments for those who request them.
