Understand discounted mortgage rates clearly.
A discount mortgage can offer an initial interest rate below the lender's standard variable rate for a set period. Learn how discount mortgages work, how the discount affects your rate and what to consider before choosing one.
What is a discount mortgage?
A discount mortgage is a type of variable-rate mortgage where the lender applies a discount to its standard variable rate, or another specified rate, for an agreed introductory period.
Because the discount is linked to a variable rate, your mortgage payment can change if the underlying rate changes during the discount period.
Once the discounted period ends, the mortgage may move to another rate under the product's terms. Understanding this future rate is an important part of comparing the overall mortgage cost.
The discount changes the starting point, not the whole mortgage.
The exact rates used by lenders vary. The illustration below explains the relationship between a lender's variable rate and a discounted rate without representing a specific product.
Illustrative rate comparison
The discounted rate can sit below the lender's specified variable rate during the introductory period.
The discount period
The mortgage product specifies how long the discounted rate applies. Check the exact period and conditions before committing.
The underlying rate
Because the discount is generally applied to a variable rate, changes in that rate can affect the mortgage rate and repayments.
The next rate
Always find out what rate could apply after the introductory discount ends and factor it into your longer-term planning.
Why the discount does not mean your rate is fixed.
A common misunderstanding is that a discounted mortgage guarantees a lower payment throughout the introductory period. In reality, the underlying variable rate can change according to the mortgage terms.
This means the discount can remain in place while the amount you pay changes because the underlying rate moves.
A discount mortgage can look attractive, but the full terms matter.
The introductory discount is only one part of the mortgage. Consider both the potential benefits and the risks of variable repayments before making a decision.
Potential advantages
Depending on the product and wider rate environment, an introductory discount can provide a lower starting mortgage rate than the underlying variable rate.
Important considerations
The introductory discount should not be viewed in isolation. The underlying rate and future rate are important when assessing the overall cost.
What should you check before choosing a discount mortgage?
Comparing mortgages based only on the initial rate can give an incomplete picture. Review the complete product and consider how it could fit your finances over time.
Discount Mortgage FAQs
Quick answers to common questions about discount mortgage rates, repayments and introductory periods.
Look beyond the discount and understand the full mortgage.
Compare the introductory rate, underlying variable rate, fees and future repayment position before deciding whether a discount mortgage fits your circumstances.