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.

With discount mortgages borrowers need to watch out for 'payment shock'.

Some short term discount products offer a 'deep discount' eg. 4% off for one year.

In such circumstances the borrower will be facing a significant increase in their monthly mortgage payment at the end of the discount benefit period.

For more information about Discount Rate Mortgages, contact one of our independent advisers.