There are many types of mortgage on the market available for all types of people and their circumstances. It can be very difficult for any buyer to make the right choice as to which one is best for them. Even if you are looking to buy for the first time or even you are a seasoned homeowner looking for a step up on the mortgage ladder the various lending institutions have many different types of deals available to match your circumstances.
A very commonplace mortgage is the discount mortgage. Put simply this is a mortgage that has a rate that is a discount from the lenders standard variable rate and this discount normally runs for a set period of time such as one to three years. The discount rate and term of the that rate tend to influence each other so the longer the term of the discount the higher the actual rate will be but the opposite is also the case the shorter the discount period the lower the actual rate will be and therefore the lower the payments will be.
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.
Mortgages that carry a discount are extremely popular with the first time buyer as it means they can save as much money as they can, which can be quite important when you are first starting out. The only drawback to this is many can be led into a mortgage that they may find unaffordable in the future due to the artificial way that the costs have been reduced 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.
Discount mortgages are good for people getting on the property ladder and as such having a greater need for cash in the early years. That said even though the mortgage might be cheap at the beginning the mortgage will rise in the future and anyone not considering this is taking an enormous risk with their future.
If you are arranging any type of mortgage you should always think about what the mortgage payment could be over time and make sure that you can still afford any potential mortgage payments in time to come. Just planning on being in a better position in a few years is financially very risky and can end up with you having your home repossessed.
It is always important to save money and saving money at the beginning of any mortgage can never be far from anyones list of requirements. That said it is always important to take a long hard look at discount mortgages and particular the pitfalls of such a deal such as the variable rate and the time when the discount actually ends. This always means that getting a good mortgage broker is always the best advice so make sure you have one to hand when making this vital decision.