Discounted Mortgage Rate
In order to maximise their business, the lenders will offer a discount off the standard variable mortgage rate and apply the discount for a period of time. The borrower's monthly payments will alter to reflect the change in the lenders standard variable mortgage rate but will stay a margin below.
Although a discounted rate means fluctuating payments, a big advantage is that from day one the borrower knows by how much the mortgage will increase on the day the discount ends. In other words, if the discount is for example 1% off the rate, and this represents a saving of £75 a month, then when the discount ends the payments will increase by £75, irrespective of any other movements in the meantime.
In addition it is common for the lenders to offer these rates without charging any arrangement fees, though not always. Furthermore discounted rates are usually the lowest rates in the market at any given time.
So if, as a borrower, you believe that the economy is going to remain fairly stable in the foreseeable future, and as a result there should be no need for the Bank of England to increase base rates, then a discounted rate will look a good bet.
