There are a lot of mortgages on the market and it can be an extremely difficult choice deciding which one is exactly right for you and your financial circumstances. Every single lender has many many different types of mortgage deals designed to suit every type of client so regardless of what type of mortgage client you are most lenders have a product to suit.
One very common of these mortgages is the discounted rate mortgage. This type of mortgage is where the mortgage rate is reduced from the variable rate for a set period of time for example 1 to 3 years. The choice of period is the buyers but the longer the reduction is for the lower the reduction will be.
Put simply the borrower is getting a reduction in their rate and therefore their payments for a set period of time and as such they will save money against the standard variable rate. That said once the discount period ends the mortgage will revert back to the lenders standard variable rate. One of the drawbacks is that due to the fact that the mortgage is a discount from the variable rate if mortgage rates do rise then the discounted mortgage will also rise at the same rate. However the same is said if the mortgage rates drop the discounted mortgage will also fall.
It is always an option to refinance in the future as quite a lot of people do. But you should consider any fees your lender may charge you to leave such as penalties on ending the mortgage early. That said if you have gone through the discount period in full you should be OK as not many lenders charge beyond their rate periods, but it is always important to check your products terms and conditions before you sign up to ensure you don't have this sort of unacceptable tie-in. A lot of people do re-mortgage to get a further reduction in rate once their original reduction has ended and therefore benefit from a further reduction in costs.
Discounted mortgages are most attractive to young first time buyers as the reduction in costs in the early years is of greatest benefit to them. However a lot of people can end up with a mortgage loan that may be unaffordable in the future due to the way the true cost is manipulated down in the early years.
Many people who have sorted out this type of deal have found themselves in a bit of trouble in the future due to the rising rates which they may not have been expecting. Furthermore a re-mortgage might not be an option as times change and they may not be able to qualify for a new mortgage company in the future, and their affordability may also be different in the future due to a change in circumstances.
A discount mortgage can be a great mortgage for those just starting on the housing ladder and therefore needing the extra money that this kind of deal can release. It should be noted that regardless of the deal being cheap at the beginning the borrower would also consider that they can actually afford the debt when the deal ends.
If you are going for any type of mortgage it is always important to consider what the payment will actually be after any deal ends as this could be the mortgage that you have to live with for 25 years and as such it is very important that you know you can afford it going into the future. Relying on getting a better salary in the future is far from good financial planning and can result in you losing your home.
Everyone wants to save money and not least on their mortgage payments as they are paid every month for years. But you should always think hard before taking any mortgage not least a discount mortgage as the wrong mortgage choice can cost thousands over time and even cost you your home. So make sure you have all the information to make the right choice and ensure you deal with an independent mortgage advisor for your mortgage advice.
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