A discount rate is a type of variable rate mortgage where the interest rate is set at a discount below a rate of interest, typically the lender’s Standard Variable Rate (SVR) for an initial period of time, typically two or three years.
The obvious benefit here is that the rate is lower, so your repayments will be cheaper. However, if interest rates rise, you can expect your repayments to increase too. You also need to be aware that lenders have differing SVRs, so you may need help in working out which discount deal is most suitable and the most cost-effective option for you.
A type of variable rate mortgage, but these have an interest rate ceiling, or cap, beyond which your payments can’t rise.
The interest rate is often higher than that available on other variable and fixed rate mortgages and the cap can be set quite high. However, it provides the certainty that your payments will not rise above a certain level.
A capped rate is normally only available for an introductory period, which can typically be from two to five years.
This type of mortgage may also have a minimum rate of interest that the lender will charge for a specified period. This is referred to as a ‘collar’.
This mortgage comes with a cash sum that’s paid to you once your purchase or remortgage has been completed and your mortgage is in place.
The amount you receive is normally expressed as a percentage of the amount you have borrowed, although it can be a fixed amount. It’s important to be aware that this type of mortgage may not be offered at a competitive rate and might mean that you’ll be paying higher monthly payments as a result.
As a mortgage is secured against your home, it could be repossessed if you do not keep up the mortgage repayments.