How does a discount rate mortgage work?
The Discounted Rate mortgage is a variation of the Standard Variable Rate (SVR) mortgage. Let’s assume that a lender’s standard variable rate is 6.90%, and they offer a Discount Rate product of 2% for 3-years. The Discounted Rate charged would therefore be 4.9%, which is 2% under the SVR of 6.9%. It’s highly likely that the SVR will change during the course of the first three years, however the Discount Rate will always be 2% under the Standard Variable Rate. One of the benefits of a Discounted Rate product is that in times where the interest rate is failing, so will the discount rate applied. Conversely of course, if the discount period was subject to general rate increases, then the discount rate applied would also be correspondingly higher.
