Discount Rate Remortgages

Discount rate remortgages are the type of remortgages wherein the lender gives you a discount interest rate for a period of time that you and the lender agree on. The discounts are usually favourable for you, the borrower.

After the set of time expires, the interest rate reverts back to the original standard variable rate (SVR) of the lender, without the discount this time. This is quite a risky remortgage type to do, but a rewarding one if things go your way. That's because it solely relies on the standard variable rate of the lender.

The standard variable rate for each lender varies. Some would go as low as 1.5%, and some would have a value as high as 3.5%. So, say for example, your lender has a standard variable rate of 2%, and you are within the discount rate zone, the discount is then calculated with the standard variable rate of 2%, giving you a much lower rate.

The discount however, is fixed, usually around 0.5% - 1.5%, again, depending on the lender. So, if your lender's standard variable rate falls, the better for you, because you won't have to have a really high interest rate.

Using the example above of 2% for the standard value rate, and say, 1% for the discount rate, you would have an interest rate of just 1%, decreasing your interest rate at half the original rate!

Discounted rate mortgages are really beneficial to the borrower, especially with the amount of time the lender's give, usually around 2 years; but for some lenders, they could offer as much as 3 - 5 years of discount rates.

Plus, if the standard variable rate goes down, the better the deal is for you. So, in order to compensate even just a little bit with that, lender's would tend to have a penalty period for an extended redemption.

This only means that you are denied flexibility of changing or switching your mortgage without having to pay quite a high redemption penalty. Hence, you should make sure that there are no such penalties for your discount rate remortgage, as they are really pretty high.

In a nutshell, a discount rate remortgage comprises of 2 things: (a) lender's variable rate; and (b) your discount rate set for a certain period. This is pretty much worth the money if you come to think of it.

However, since this type of mortgage uses a variable rate, you would have no idea as to how much gets taken out of your account every month. So, there's a possibility that the lender's variable rate would really go quite high, thus, hurting your credit pretty badly.

Also, watch out for fine prints prior to signing up with the lender, because usually for these types of mortgages, they are highly beneficial to the debtor, thus making lenders impose additional fees & penalties.

Personally, I would go for this type of mortgage since you get a discount rate for a certain period of time, it is just the variable rate I would be worried about though. But, once you get the hang of this, surely, you wouldn't have think twice about this in the future.

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