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Step 1
Take a look at what’s out there. Latest estimates suggest that there are now more than 8,500 mortgage deals to choose from, so it is little wonder that so many people make mistakes and end up paying over the odds. Up to four in ten mortgage customers are estimated to be making the biggest mistake of all by paying their lender’s standard variable interest rate. This tends to be around 2 per cent over the Bank of England base rate of the day – so when base rate is 5 per cent standard variable rates hover around 7 per cent.
Discount mortgages are one simple solution to this expensive problem. In effect they work just the way it says on the tin – you don’t pay the normal standard rate, you pay a discount rate a pre-agreed amount below it. The discounts vary widely, of course. Some lenders may be offering 1.5 per cent off their standard rate while others may be offering up to 2.5 per cent off. But watch out for one thing. If a lender’s standard rate is very high, then a big discount may still work out more expensive than a smaller discount taken off a lower price. It really is like shopping around in the sales when ’40 per cent off’ prices can’t always be believed. Always check the interest rate you will pay as well as the size of the discount to make sure you don’t get duped.
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