Is A Discount Mortgage The Right Product?

There are a lot of mortgages on the market and it can be an extremely difficult choice deciding which one is exactly right for you and your financial circumstances. Every single lender has many many different types of mortgage deals designed to suit every type of client so regardless of what type of mortgage client you are most lenders have a product to suit.

A very commonplace mortgage is the discount mortgage. Put simply this is a mortgage that has a rate that is a discount from the lenders standard variable rate and this discount normally runs for a set period of time such as one to three years. The discount rate and term of the that rate tend to influence each other so the longer the term of the discount the higher the actual rate will be but the opposite is also the case the shorter the discount period the lower the actual rate will be and therefore the lower the payments will be.

Put simply the borrower is getting a reduction in their rate and therefore their payments for a set period of time and as such they will save money against the standard variable rate. That said once the discount period ends the mortgage will revert back to the lenders standard variable rate. One of the drawbacks is that due to the fact that the mortgage is a discount from the variable rate if mortgage rates do rise then the discounted mortgage will also rise at the same rate. However the same is said if the mortgage rates drop the discounted mortgage will also fall.

Re-mortgaging after the discounted period has ended is always a good option, but should always remember that some lenders do charge early repayment fees if mortgages are ended early that however not many lenders charge fees once the discount period has ended but is worth checking before you sign up for the deal in the first place. The main reason to refinance is to possible get another discounted deal for another set period of time and therefore save a bit more money.

Discount rate mortgages are very popular amongst young homeowners, since they are able to keep mortgage payments and interest fees low for the first couple of years, which as anyone who has got onto the property ladder for the first time will testify the more money they can save the better. The only problem is that many see themselves being able to afford a higher mortgage payment after the discount period has ended, and this does not always happen.

Many individuals who have taken advantage of the benefits that discounted rate mortgages have to offer find themselves in financial hardship, due to the inability to pay higher mortgage payments after the discount period has ended. Refinancing to a better rate mortgage can also be difficult as rates do change and a discounted rate in the future might not be as beneficial as it was in the past. All this is assuming that the current mortgage has been conducted satisfactory as any poor mortgage history makes re-mortgaging even harder than it could be.

Discount mortgages are good for people getting on the property ladder and as such having a greater need for cash in the early years. That said even though the mortgage might be cheap at the beginning the mortgage will rise in the future and anyone not considering this is taking an enormous risk with their future.

If you are going for any type of mortgage it is always important to consider what the payment will actually be after any deal ends as this could be the mortgage that you have to live with for 25 years and as such it is very important that you know you can afford it going into the future. Relying on getting a better salary in the future is far from good financial planning and can result in you losing your home.

Everyone wants to save money and not least on their mortgage payments as they are paid every month for years. But you should always think hard before taking any mortgage not least a discount mortgage as the wrong mortgage choice can cost thousands over time and even cost you your home. So make sure you have all the information to make the right choice and ensure you deal with an independent mortgage advisor for your mortgage advice.

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