|
|
|
|
|
Benefits of Discounted Mortgages
Discounted mortgages mean a lender will, for a limited period, offer a mortgage at a discount of their standard variable rate. This is usually between 6mths and 10 or more years. Some lenders give a bigger discount if a larger deposit is made. A few will give cash back offers.
Normally there is a tie-in during the discounted term after which the mortgage reverts to the standard variable rate. Occasionally there may be a further tie-in after this, sometimes known as a hangover.
The monthly payments of a discount mortgage may fluctuate if rates rise or fall but the discount percentage will remain the same.
Borrowers can easily estimate the cost of the mortgage after the discount period ends as however much the monthly savings amount to is the amount the payments will increase a month.
Fees and charges for this type of mortgage are less that fixed rate products as they present less of a risk to the lender.
A discounted mortgage is very good for those who are on a budget but with a little to spare should the rates rise and for those who know they will be better off financially in a few years. As there are lower monthly payments in the early years of the mortgage this enables borrowers to spend cash on the new house, for alterations, new appliances or furniture.
Stepped discount mortgages are those that, over a period of years, the monthly payments will gradually rise so there is not such a rise in payments when the discount period comes to term.
They are especially good if the market looks set to remain stable for a while and are usually the lowest rate mortgages on the market. They are also good for borrowers if the rates fall. Even if the rates were to rise the borrower will still pay less than those paying the standard variable rate. Borrowers will gain if rates average out below fixed and capped rates.
Often lenders will allow regular lump sum payments to help pay off the mortgage early without incurring penalties.
Summary
• Ability to choose the length of discounted term
• Lower monthly payments for first few years
• Especially good if rates fall
• Stepped discounts allow gradual payment increased
• Cheaper fees and charges
|
|
|
