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In order to attract new customers most lenders offer discount rate mortgages, which are an introductory special rate for a set period at the start of a mortgage term.  Usually for a period of between 6 months and 5 years, the discount rate will be certain percentage off the lender’s standard variable rate.  The discount amount will be dependent on the length of the offer – so a six month discount rate will be at a lower interest rate than a five 3 year discount rate.  After the discount rate has finished the borrower will revert to the lender’s standard variable rate, at which time many borrowers remortgage in order to take advantage of another lender’s discount rate mortgage offer.

The discount rate will still follow rises and falls in the lenders standard variable rate, which tracks the Bank of England Base Rate.

The discount rate period will usually always be subject to a lock-in period, where a charge is incurred for remortgaging during the discount period; while this is a fairly standard practise, some lenders’ lock-in period may extend beyond the conclusion of the discount period in an effort to prevent borrowers remortgaging once they are switched onto the less-favourable standard variable rate. 

Discount rate mortgages are a good way to find extra money at the start of your mortgage in order to make home improvements or in order to reorganise your finances after the expense of moving house.  However, as your repayments will still fluctuate with rate rises and falls, managing your budget is more difficult.  And while you will be receiving a reduced rate for a while, the change onto the standard rate can be quite a shock to your finances, especially if rates are substantially higher than when you took out the mortgage.  If your finances do not allow much space to move in the event of rate rises, you may want to consider a fixed rate mortgage for as long a period as possible, or become dedicated to chasing the best rates possible by remortgaging at the end of each discount period.

To compare discount rate mortgages complete the form on this page for the best deals available, and an independent assessment on the best mortgage plan for your circumstances.