Are discount mortgages a good choice?
June 18, 2008
From fixed rate mortgages to a tracker mortgage, and from interest only mortgages to buy to let mortgages, the world of mortgage loans has become more complex than ever these days, with a wide range of mortgages to select from. This is great news for consumers that want to find the perfect mortgage for their needs, but can be a nightmare for those that know little or nothing about mortgages and are not sure where to even start.
One of the mortgage types that are available these days are discount mortgages, and as the name suggests these mortgages offer a discount on the standard variable rate by a certain level such as by one or two percent. These mortgages are still variable mortgages, so they will still fluctuate in line with the base rate. However, the benefit is that your mortgage interest rate will always be lower by a given amount than the standard variable rate.
The discounted rate offered on these mortgages lasts for a specified period of time, which you will find out when you compare the different discounted mortgages. After the discount period has come to an end the interest rate on your mortgage will no longer be discounted and you will then revert back to the lender’s standard variable rate, which will of course be higher than the rate that you have been paying, which means that your repayments will rise.
If you are coming close to the end of a discounted period on your mortgage, but you do not think that you can afford to revert to the lender’s SVR and make the higher repayments you should look at alternatives, such as remortgaging to another discounted rate mortgage or looking at other mortgage options that are available once your discounted rate ends. This will help to ensure that you do not get lumbered with a high rate of interest and repayments that you cannot keep up with.
You should bear in mind that the level of discount offered can vary from one mortgage provider to another, and it is therefore important that you compare a number of discount mortgages to find the best deal. Some lenders may offer a 1% discount on the SVR whereas another may offer 1.5% or 2%. However, make sure that you also remember that the SVR can vary from provider to provider so you need to look at both the SVR and the level of discount in order to work out which is the best deal.
You can quickly and easily compare different discount mortgages using the Internet, and this will enable you to quickly determine which of these mortgages is best suited to your needs and your pocket. You will be able to find out the level of discount offered, the standard variable rate that each lender charges, and the term of the fixed rate. You should also look at other factors such as the repayments terms offered, so that you can get an overall idea of the suitability of the mortgage and make a more informed decision with regards to whether this is the mortgage for you.
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