UK Discount Rate Mortgage
The Lender offers a discount on the Standard Variable Rate (SVR) for a specific period of time. For example, the variable rate may be 5% with a discount of 1.5%. The initial pay rate would therefore be 3.5%. If the variable rate rose to say, 6%, then the rate payable would rise to 4.5%. As the discount is linked to the standard variable rate, the borrowers payments will increase, if rates rise – so there is no certainty in budgeting. However should rates decrease the borrower will benefit from lower payments.
It is still possible to have up-front charges for discounted products and an Early Redemption Charge is common.
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