Discounted Rate Mortgage - A Mortgage product with a set reduction period
A discounted rate mortgage is a mortgage that has an arranged discount period, it would mean that interest is charged on the discounted rate mortgage at the standard variable base rate less an arranged discount for a set period. The period usually attributed to discounted rate mortgages is about two years but can be more dependant on the mortgage lender. The consumers monthly mortgage repayments will go up or down depending on the Bank of England's base rate changes. These type of mortgages tend to lock the consumer into the mortgage for a minimum limited period and may include a penalty clause if they try to swap to any other mortgage product but can be beneficial to some borrowers.
Discounted Rate Mortgage Example - UK Discounted Rate Mortgage
A UK discounted rate mortgage means interest rate will fluctuate according to the Bank of England's base rate, which can vary dramatically, however for a limited time the consumer will have a reduction on the base rate according to their agreement. When this agreement expires the consumer can shop around for a new mortgage or negotiate a new deal.
Repayments on mortgages can be affected by any fluctuations in the base rate, how these base rate fluctuations affects interest rates and mortgage repayments depends on what sort of individual mortgage product customers have.
Capped Rate Mortgage repayments may be affected depending on which way the base rate had changed, whether it be up or down. It would also depend on whether the lender actually passed on any base rate changes to there customers.
A Capital and Interest mortgage where the customer pays of both the interest on the mortgage loan as well as the capital, repayments will be affected by base and interest rate changes.
Repayments will be affected on a Dicounted Rate Mortgage by interest rate fluctuations,however for a limited time the consumer will have a reduction on the rate according to their agreement.
With Endowment Mortgages repayments to the mortgage lender covers the interest the lender charges on the money borrowed and a part of the repayment is invested in order to eventually repay the capital. Repayments on this type of mortgage are affected by any fluctuations in the interest rate.
The interest rate is set for the entire duration of the mortgage loan with a Fixed Rate Mortgage, this means that interest rate fluctuations will not affect mortgage repayments during this period.
Repayments may be affected with a Flexible Rate Mortgage, depending on whether the lender passes on any rate changes (up or down)to the borrower. With a flexible rate mortgage it might affect repayments, a rise or fall will be dependant on the direction of change in the base rate and if the mortgage lender passes the change on to the customer.
Interest Only Mortgage repayments will be affected by interest rate changes.
Repayments on a Repayment Mortgage will be affected by interest rate changes. The capital as well as the interest is paid back over an agreed term.
With a Tracker Rate Mortgage the interest rate changes in accordance with any fluctuations so it will affect repayments whether it be a rise or fall.
Repayments on a variable rate mortgage,will rise or fall dependant on the direction of change in the base rate and if the mortgage lender passes the change on to the customer.