The benefits of a UK discounted mortgage

With a UK discounted mortgage, the lender gives a discount off their standard variable interest rate for a given period. 

For example, the standard variable rate may be 5% with a discount of 1% making your initial interest repayments rate 4%. Your repayments will rise and fall in line with the standard variable rate which your discount rate is based on but will always be discounted for the agreed period and at the agreed rate. At the end of the discount period your interest rate for the UK discounted mortgage reverts to the lenders standard variable mortgage rate.

benefits

You have a reduced mortgage payment over an agreed period, which may help with your initial repayments budgeting.

risks

Whilst a UK discounted mortgage rate may be helpful initially, you should consider how much your repayments will revert to when the discount period ends. At that time the lenders standard variable rate may not be the best rate available. UK lenders usually apply redemption penalties for long enough for them to recover any profits lost by offering a discounted mortgage in the initial period.

If your income level cannot cope with any rise in UK interest rates, even with a discount, this should be of concern.

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