Discounted Rates
A discount is a set reduction off the lender's standard variable rate for a given period. When the standard rate goes up and down, so does your rate.
Discount periods vary from a few months to several years, although most are between two and five years. Generally, the shorter the period, the bigger the discount. At the end of the discount period, you'll usually revert to the lender's standard variable rate.
Discounts let you benefit from any fall in your lender's standard rate. However, If interest rates rise, so will your monthly repayments.
Some deals come without any fees (such as arrangement and booking fees). Discounts can keep your payments low in the early years when your finances may be especially stretched due to the costs of moving and doing up your new home.
Some discount deals come with an early repayment charge during the period of the discount. If you repay the mortgage during this time, the charge could amount to hundreds or even thousands of pounds.
On some deals (usually the cheapest deals available) the early repayment charge applies beyond the discounted rate. So, when your discount ends, you'll move onto the lender's standard rate (which may be considerably higher than the rate you were paying). You will be able to switch to a different deal only if you pay the penalty. You should think carefully about whether this type of deal is suitable for you.
Your home may be repossessed if you do not keep up repayments on your mortgage.
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The Financial Services Authority does not regulate some forms of Mortgage.
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