What is a discount variable mortgage?
A discount-variable mortgage is a mortgage with an interest rate at a set amount below the lender’s standard variable rate, usually for a specific term.
For example, a product may offer a discount rate of 1% for 2 years. If the lender’s standard variable rate is 5%, your interest rate would be 4%.
The main benefit of a discount mortgage is, you guessed it, the discount! Your monthly payments are guaranteed to be lower than if you were on the standard variable rate for the term of the discount.
Another positive, similar to a standard variable, is that you would immediately benefit from any reduction in the lender’s variable interest rate. However, many products also come with a ‘collar’. A collar is the minimum interest that would be payable, and your interest rate couldn’t drop below this point, regardless of the current variable rate and your level of discount.
- The rate is still variable, so your monthly payments may fluctuate each month.
- Many products have a collar in place.
- Early repayment charges – Most lenders, once a discount mortgage has been taken out for a set term, will charge if you wish to repay your mortgage early.
- Once the term of the discount ends, you will automatically be switched to the lender’s variable rate if you have not made any other arrangements.
At Wakefield Mortgage Services, we understand many people are reluctant to fix in while interest rates are high, and might be delaying arranging a mortgage or remortgage to see if things settle down. A discount variable product could be a viable solution. Get in touch with our expert advisers and we’ll find the right product for you.