Discount Mortgage Rate
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Discount mortgage rate
Discounted mortgage rates are as they sound. The lender offers a discount on their standard variable rate, normally for a set amount of time, for the first two, three or five years. In recently years, discount mortgage rates have been less popular with low interest rates and increased availability of tracker rate mortgages and fixed rates.
A discounted mortgage rate should not to be recommended if you are on a tight budget and/or you need to have the peace of mind that your mortgage costs are not going to increase unexpectedly.
A discount mortgage rate could be cheaper than the more popular fixed rate mortgages if rates do not increase over the period but the longer the initial period, the more risk.
Mortgage fees have been increasing over more and more in recent times as lenders try to claw back some of the savings homeowners can get by switching mortgage. Generally speaking the smaller the mortgage, the lower the fees should be. There would be little point in switching or remortgaging to a 2-year fixed rate, saving £25 per month (£600 over 2 years) if the set up fees were £1000 other than concern over future interest rates.
Most new mortgages come with an associated redemption penalty/tie-in. Lenders will only offer a lower initial discount mortgage rate if you agree to their redemption terms. Should you leave, or pay off the mortgage you would need to pay a redemption penalty. This is usually a percentage of the outstanding mortgage and will be included in your total redemption balance.
Some lenders can also include an extended tie-in. In this case the redemption penalty is payable even after the discount mortgage rate has ended. Your initial rate could finish but you may not be penalty free for a further year or two years for example. It is rare that these rates would be recommended under any circumstances
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
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