Discounted Mortgage
What are they - How they work - Pros & Cons
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Last update : November 2011
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| A 'discounted mortgage' is not an actual mortgage style such as fixed or flexible etc.
Instead the name relates to any mortgage that comes with a discount, or a special offer mortgage. For example -
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- A discounted fixed rate mortgage where the interest rate is fixed at 5% for 5 years but offers a 1% discount (to 4%) over the first 18 months
- A discounted variable rate mortgage with a 2% discount (off the SVR - standard variable rate - more details on the introduction to mortgages page), or
- A special deal for first time buyers where the interest rate is fixed at a very low rate for the first year plus all the legal fees are paid
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| Different discounts are available |
| The discount doesn't always refer to the interest rate. For example - |
- Cash back mortgages - the lender will pay a cash sum to the borrower when the deal is signed. First time buyers often take advantage of these deals as they can use the money to furnish their new home etc
- Fee subsidies - Buying or moving house is not cheap as various fees have to be paid. Maybe the lender offers a discount on its fees or helps pay the legal charges
- Mixture of discounts - maybe a lender will offer to pay a proportion of the fees, moving costs, or legal fees etc
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| Ask for discounts on small LTV deals |
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When I first started researching mortgages it was interesting to discover that lenders are often open to negotiation. It therefore pays to ask what deal they are prepared to offer, perhaps knocking 25% off the arrangement fees etc.
This is especially the case if you are able to put down a large deposit in relation to the size of the loan. For example, if you put up £300k in cash and borrow £100k to buy a £400k property there is no risk to the bank as there's a cushion of 75% cash equity.
The borrower therefore is in a very strong position because most lenders love this no-risk business. So why not ask for a deal and see if the lender can chisel the interest rate or the costs?
The best way to achieve this is to use some leverage, ie play more than a few lenders against each other. Tell lender A that you'd prefer to do business with them but only if they can match lender B's offer.
The worst they can say is no.
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| Positives |
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- Everyone likes a discount - enough said
- Cheaper monthly repayments - enough said
- Plenty of deals always available - Just like Tesco or Sainsbury's the lenders always have plenty of special offers so it pays to shop around
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| Negatives |
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- Temporary - Discounted deals only last for between 1-3 years, after which the mortgage might turn out to be expensive, ie the interest rate jumps considerably. So always be sure to ask what happens when the discounted period ends
- Must to be quick - some of the best discounted mortgages sell quickly, within 1-2 weeks - so be quick to spot a good deal and sign up
- Expensive exit fees - I don't have a problem with high exit fees during the discounted period (say 1% off the interest rate for 2 years) but look carefully at these fees when the discount has expired, if they're still expensive be wary of that particular mortgage - See Mortgage Fees & Charges
- Watch out for small print tricks - a lender will offer what looks to be a great mortgage deal but will then rely on the small print to increase the fees making the 'discounted' deal expensive. The lenders can often get away with this because they know many of their customers won't take the time to thoroughly know what they're really buying
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| Buying tactics, tips and tricks |
| Want the right mortgage at the best price? Then start by downloading our free mortgage guide and follow the 4 easy steps.
As mentioned above a discounted mortgage is not a mortgage in itself, rather it describes any style of mortgage that comes with some sort of discount.
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| LearnMoney.co.uk comment : |
| Canny and shrewd shoppers are always on the lookout for the best deals, and so should you be when researching the mortgage market.
Be aware though that many mortgage deals are nothing more than slick and professional marketing tricks designed to fool the customers, for example an extremely low interest rate but very high arrangement fees.
However if you expect this behaviour from the lenders and do your own independent research you'll easily be able to sort the wheat from the chaff. Start by downloading our free guide - How to buy the right mortgage at the best price in 4 easy steps
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FREE Report: How to get the right mortgage at the best price
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It takes just 4 easy steps
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How to make sure you don't overpay on charges
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Learn to quickly sort through the market maze |
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How to get a flexible deal - why this is so important
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Download the Free Report |
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