Discount Mortgage

Sam · Posted: Thu Jun 03, 2004 12:53 am Post subject: Discount Mortgage

Discount Mortgage offers a reduction of a 'given amount' on the lender's standard variable rate. It is an interest rate which is usually set for the period of 1 to 5 years.
Advantages:

A borrower can make a big saving on the standard variable rate.
It benefits a borrower by offering a lower interest rate in first few years. He can save money for furnishings, carpets or for whatever else he wants.
It is used as an incentive to attract potential new borrowers.

Disadvantages:

A borrower will normally have to pay an application fee when arranging for discount mortgage.
At the end of the discounted period, borrower's mortgage payments will suddenly increase as the mortgage changes to lender standard variable rate.
A borrower has to pay early redemption penalties, which may make it expensive for him to remortgage to another rate or lender.

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