Discounted Rate Mortgages

Discounted rate mortgages offer you a discount off the lender's Standard Variable Rate (SVR). As a rule, the shorter the length of the discount mortgage, the bigger the discount. So you might get a variable rate mortgage with a 2% discount for 12 months, or a 0.5% discount mortgage for three years, for example.

Discount mortgages can offer some of the lowest interest rates available in the market. But because they are attached to the lender's Standard Variable Rate (SVR), they are variable and as such will go up and down as interest rates fluctuate, so your repayments will vary.

The other point to be aware of is that these discounted mortgage products are based on the lender's Standard Variable Rate (SVR) and not the Bank of England base rate as a tracker product would be and so if there is a change of; for example, a 0.50% increase to the Bank of England base rate this might not be fully reflected when the lender changes their SVR because they may increase it by more than the BOE base rate was increased, or sometimes less.

As already mentioned discount rate mortgages are available for set durations of anything between 6 months and 2 or 3 year periods and generally you will have a "tie in" period with the lender for this period of time during which if you were to redeem the mortgage you would be liable for an Early Repayment Charge (ERC). Once this "tie in" period has ended you are then free to go as long as the product does not have an extended "tie in" known as an overhang, which would mean you are still tied to the lender's Standard Variable Rate (SVR) for a further year or two before the liability for an Early Repayment Charge (ERC) finishes.

If you have chosen a discount rate mortgage to last for example 2 or 3 years, once this promotional period comes to an end the rate will normally revert to the lenders standard variable rate (SVR), or another margin above the Bank of England base rate for the remaining term of the mortgage. At Grovelawn Financial we would always contact you the customer 2 - 3 months before the end of the promotional discount rate period to then see what is best for you and what your current circumstances may demand. The choice will be whether to stay with the same lender and perhaps switch to a further promotional discount, tracker or fixed rate for another set period or move to an alternative lender that may be offering a free valuation and or free legal services in order to encourage you to move lenders and ultimately offer a more competitive deal to move your mortgage.

It will depend though on other aspects of your existing mortgage as to whether is best to stay with your existing lender or move and this may be determined by the additional charges lenders levy when redeeming your mortgage, all of this would be calculated by your mortgage advisor and fully explained.

Your property may be repossessed if you do not keep up repayments on your mortgage.

For more information on how we are paid for mortgages please click here.

Grovelawn Financial Services, 1C Restormel Industrial Estate, Liddicoat Road, Lostwithial PL22 0HD — T: 01208 872689