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Discounted mortgages the pros and cons


With so many different types of home mortgages currently on the market, it can be hard for possible homeowners to decide which mortgage is best for them. Whether an individual is looking to refinance or take out their first mortgage, lending companies have a number of different mortgage options available to fit almost anyone's needs.

One type of mortgage that is offered to those looking to purchase their first home is a discount rate mortgage, where borrowers are offered a reduced interest rate on their loan for a set period of time. The interest rate typically stays reduced for a period of about one to three years, depending greatly on what the borrower would like to do.

Borrowers are getting a discount from this type of mortgage by paying low interest fees during their initial period, but will save more money overall when the discounted period is short. Once the discounted period ends, the borrower will have to pay the standard variable rate that is offered by the lender. With a variable rate mortgage, interest rates can frequently change and can cause monthly mortgage payments to increase or even decrease each month.

Refinancing after the introductory discount period is an option, but some mortgage companies can charge penalty fees for ending the loan early, however most companies do not charge once the discount period has ended. The point to refinancing at the time is to potentially lock in on another discount period as this will in turn save money against the variable rate mortgage.

Discount rate mortgages are very popular amongst young homeowners, since they are able to keep mortgage payments and interest fees low for the first couple of years, which as anyone who has got onto the property ladder for the first time will testify the more money they can save the better. The only problem is that many see themselves being able to afford a higher mortgage payment after the discount period has ended, and this does not always happen.

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.

When applying for a discounted rate mortgage, it is always important to know how much the mortgage payment will be after the introductory period has ended, and be able to afford the higher payments right off the bat. Hoping that you will get a raise or better job once the discount period has ended is not enough when applying for a discounted rate mortgage, because if you cannot afford the higher payments you can lose your home. Discounted rate mortgages are a great option for many looking to buy a home, but it is not the best option for everybody.

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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