Discount Variable Rate Mortgage

Discount Variable Rate Mortgage

A Discount Variable Rate Mortgage is a variable rate mortgage with the option of a limited discounted payment period, which is normally 2 years but can be up to 5 years, at the start of the mortgage.

The Lender may offer a discount for say the first 2 years of around 2% below the standard variable rate (SVR). This means that your monthly repayments will be 2% lower each month for this fixed period.

The standard variable rate is not a fixed rate so if the SVR increases at any time your monthly payments will increase but you will still get the discount of 2% on this amount.

Also if the SVR decreases, say after a year, you will likewise pay lower than the SVR thereby making a saving. Its worth taking into account that this type of mortgage is ok in a stable market but if interest rates rise too much it could leave you exposed. The Lender can also raise their rate independantly to the Bank of England base rate, which is also worth noting.

When the discounted period ends your monthly payments will revert to the standard variable rate mortgage which will be higher so you need to budget for this.

There is also an option of a stepped discount variable rate mortgage which offers a lower discount rate to start with so this option looks a much better deal, but beware as this can work out a lot more expensive over the same period, as the rate goes up in steps.