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Step 4
What if rates go up? This is the big downside of a discount mortgage. If interest rates rise, then so too will your payments. A decent 1.5 per cent discount when standard rates are at 6.75 per cent may be very affordable. It can be worryingly expensive if standard rates hit 7.75 per cent or more. That’s why fixed rate deals are normally lined up next to discounts when borrowers try to find the right mortgage. The problem with fixes is that the rate you start out on is normally higher than the rate on a good discount. So you have to work out how important payment security is going to be. If you think you will really struggle if rates rise then a fix can beat a discount. But if you reckon you can juggle your money and find some extra if needed then discounts can save you more overall. And, of course, if interest rates go down then you should get the benefit with a discount when you won’t on a fix. It’s a tough decision – but again the best way to find the right deal is to add up the total costs of each type of loan over a couple of years. And to see what will happen to your payments if interest rates rise use the ‘Mortgage Affordability’ calculator at www.thisismoney.co.uk.
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