Discount Mortgages Explained

By nature we are short-termist in our thinking, and therefore the attraction of having a better deal in the short term can lead us to make decisions that may not make sense financially (or in other terms) overall.

We are great procrastinators and will put anything off, and often value more highly immediate gains even if there are sacrifices to make at a later time.

With the human psychology lesson out the way, it can be seen that a bargain can appear very good even if you know that the long term value is not necessarily there.

And so we come to discounted mortgages, where there is a very attractive discount off the rate but for a set period. And typically this is in the region of 2 - 3 years, whereafter the rate will revert to the standard rate for that product (for instance the standard variable rate for that lender).

During the time, you will be tied to the mortgage through charges to pay on wishing to exit, though as this is the 'bargain' period then it usually unlikely you will want to exit in this time unless circumstances change and you need to drastically redress your financial situation and outgoings.

At the end of the period, you will probably want to remortgage, and therefore any fees that will be incurred at this stage should be taken into account with your calculations, and so whilst payments are low at first and it looks cheap, the need to remortgage and the fees that are usually in place tying you in can make it less attractive overall than may initially appear to be the case.

If you are happy searching out deals every couple of years and are prepared with the relative hassle and possible fees of remortgaging at regular periods, then the discount mortgage could be a product that is worth considering for you.

If you do decide to go with a discounted rate mortgage, then you should definitely do your research as the various fees associated and early redemption fees can vary significantly from provider to provider, and these need to be taken into account when considering the best deal for you, and not just the headline rate offered - so be diligent in your research to find what is really the most attractive discounted mortgage product all things considered.

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