A discounted rate mortgage uses a variable interest rate – so your payments can go up and down. They work by offering a set discount on a lender's Standard Variable Rate (SVR). So, if the lender's SVR is currently 4.00% and the discounted rate offers a 1.00% discount, you'll initially pay 3.00% for an agreed introductory period.
Then, if the SVR goes up to 5.00% later, your discounted rate would go up to 4.00%. If the SVR goes down by 1.00%, your discounted rate would also go down by 1.00%. To find out when a lender may increase or decrease their SVR (and therefore any discounted rates linked to it), see our SVR guide.
When your introductory period comes to an end, you will most likely move onto your lender's full SVR. Discounted rates tend to come with an early repayment charge, if you pay off the mortgage early or remortgage to another lender during the introductory period. However, most will let you make overpayments – normally up to 10% of the outstanding balance per year.
If you have a lifetime discounted mortgage, the early repayment charge will probably not apply for the full term of the mortgage, but only for an initial two to five-year period (depending on your lender).
Although discounted mortgages may sound like a good deal, they're not necessarily the cheapest mortgage rates available. For example, you may be able to find a cheaper tracker mortgage. Remember: discounted mortgages have variable rates, which means you won't get the same payment security as you do with a fixed rate.
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