Discount mortgages are products that can help you save money by locking yourself into an agreement with a reduced interest rate. But how exactly do these products work? How do you go about getting one, and are there any alternatives that you should consider?\r\n\r\nIn our guide to discount mortgages, you\u2019ll learn the answers to these questions and find out where to turn for specialist advice on them. Plus, in our FAQ section, we reveal the answers to the questions we hear most often from customers who have enquired about discount mortgages.\r\n<ul>\r\n \t<li><a href="#what-is">What is a discount mortgage?<\/a>\r\n<ul>\r\n \t<li><a href="#how-they-work">How do they work?<\/a><\/li>\r\n \t<li><a href="#discount">How much discount can I get?<\/a><\/li>\r\n<\/ul>\r\n<\/li>\r\n \t<li><a href="#right-for-me">Is a discount mortgage right for me?<\/a><\/li>\r\n \t<li><a href="#lenders">Which lenders offer discount mortgages?<\/a>\r\n<ul>\r\n \t<li><a href="#best-deals">How do I find the best deals?<\/a><\/li>\r\n<\/ul>\r\n<\/li>\r\n \t<li><a href="#broker">Speak to a discount mortgage broker<\/a><\/li>\r\n \t<li><a href="#faqs">FAQs<\/a><\/li>\r\n<\/ul>\r\n[feefo-banner]\r\n<h2 id="what-is">What is a discount mortgage?<\/h2>\r\nA discount mortgage is a mortgage that comes with a reduced interest rate for either a set period or the entire term. The rate you pay is a discounted one set below the mortgage lender\u2019s standard variable rate (SVR), but it could rise or fall from one month to the next, since discount mortgages are a type of <a href="https:\/\/www.onlinemortgageadvisor.co.uk\/standard-variable-rates\/best-standard-variable-rate-deals\/">variable-rate product<\/a>. Some lenders will charge an administration or arrangement fee to set up a discount mortgage.\r\n<h3 id="how-they-work">How do they work?<\/h3>\r\nThe discount the lender applies to your mortgage will be a specific percentage that is applied to the interest rate, but the interest rate itself can fluctuate. If you enter any kind of SVR agreement, your lender can adjust your interest rate from one month to the next, and may do so in line with increases or reductions to the Bank of England\u2019s base rate. When this happens, the discount you\u2019re entitled to will still apply but will be deducted from whatever the rate is that month.\r\n\r\n<b>Example: <\/b>If you were to enter a discount mortgage with a discount rate of 1% and an interest rate of 3%, the actual amount of interest you\u2019d pay would be 2%. But if the lender was to increase your rate to 4% the following month, the rate you\u2019d pay would be 3% thanks to the discount.\r\n\r\nMost discount mortgages are only discounted for a limited period, usually between two and five years, though a minority of lenders offer them for the full duration of the term. After your discount period ends, you will automatically be moved onto the lender\u2019s SVR, unless you choose to <a href="https:\/\/www.onlinemortgageadvisor.co.uk\/remortgages\/remortgage-guide\/">remortgage<\/a> with your current provider or find another one who offers discount mortgages.\r\n<h3 id="discount">What discount rate can you get?<\/h3>\r\nThis varies from lender to lender. Some mortgage providers offer discount mortgages with an interest rate set 1% lower than their SVR, while others stretch to a higher percentage than that. In recent years, the biggest discount on the market was more than 4%, but keep in mind that the product with the highest discount isn\u2019t necessarily the most cost-effective.\r\n\r\nFor instance, one lender might offer a discount of 4% but their SVR is 6.5%, meaning you\u2019d be paying interest at 2.5%. Another lender might be offering a 2% discount with a SVR of 3.5%, so you\u2019d actually be paying the lower amount of 1.5% interest with lender two.\r\n\r\nAlso bear in mind that some discount mortgage - around a quarter of these products - come with a <b>collar<\/b>. This is a set interest rate that your mortgage cannot drop below, regardless of any changes to the lender\u2019s SVR. This will obviously impact the overall amount you pay.\r\n<h2 id="right-for-me">Should you buy a home with a discount mortgage?<\/h2>\r\nThis is a question to put to a mortgage broker as they will be able to fully assess your needs and circumstances and help you make an informed decision about whether a discount mortgage is the way to go. They will likely discuss potential alternatives - such as <a href="https:\/\/www.onlinemortgageadvisor.co.uk\/fixed-rate-mortgage\/">fixed rate mortgages<\/a> - with you, and compare the entire market to make sure you end up with the best discount.\r\n\r\nTo give you a better idea of whether a discount mortgage is the best fit for you, we\u2019ve outlined some of their general advantages and disadvantages below\u2026\r\n<h3>Advantages<\/h3>\r\n<ol>\r\n \t<li>While in a discount period, you\u2019re guaranteed to be paying lower interest rates than you would if you were on the mortgage lender\u2019s <a href="https:\/\/www.onlinemortgageadvisor.co.uk\/standard-variable-rates\/">standard variable rate<\/a>. This takes away some of the uncertainty usually associated with variable rate mortgage products.<\/li>\r\n \t<li>Like all variable rate products, discount mortgages can be great during times when UK interest rates are low. With the discount factored in, you might find that this type of mortgage offers some of the best rates on the market during times of low interest.<\/li>\r\n \t<li>Fees tend to be lower than for alternative products like fixed rate mortgages.<\/li>\r\n<\/ol>\r\n<h3>Disadvantages<\/h3>\r\n<ol>\r\n \t<li>They don\u2019t offer the same certainty as a fixed rate mortgage since the actual rate you will pay can fluctuate each month, even with the discount factored in.<\/li>\r\n \t<li>You will be automatically switched to the lender\u2019s SVR once the discount period ends, and this is usually higher than the rates for other products, such as fixed rate mortgages.<\/li>\r\n \t<li>Deals with a \u2018collar\u2019 attached may not offer a rates advantage over other product types.<\/li>\r\n<\/ol>\r\n<h2 id="lenders">Which lenders offer discount mortgages?<\/h2>\r\nLenders currently offering discount mortgages in the UK include Clydesdale Bank, Newcastle Building Society, Yorkshire Bank and Furness Building Society. At the time of writing, discount rates are ranging between just under 1.5% and almost 6%, but this could change at any time. The length of the discount period that these deals include also varies greatly.\r\n\r\nAlso keep in mind that every mortgage provider has a different eligibility criteria that you must meet. The closer you meet it, the more likely you are to get a good discount mortgage deal.\r\n\r\nThe discount mortgages market is vast and the lenders we\u2019ve name-dropped here are merely a handful of the companies operating in it. The right lender for you is the one who is best positioned to offer a favourable deal to a customer with your needs and circumstances, and that won\u2019t be easy to find unless you know the market inside out and have access to every lender.\r\n<h3 id="best-deals">How to find the best deals<\/h3>\r\nThe best way to get the most favourable deal on a discount mortgage is to apply through the right mortgage broker. The brokers we work with have access to the entire market and know exactly which mortgage providers to approach for these products and what kind of extra fees they might charge.\r\n\r\nUsing a broker is a better alternative to going direct to a lender, as it means you will have access to more than just one set of products and won\u2019t miss out if there\u2019s a better deal elsewhere.\r\n\r\nApplying through a whole-of-market broker is also a better course of action to doing all of the legwork yourself or doing a quick search on the internet. Online rates tables rarely cover the whole of the market, aren\u2019t bespoke to you and often give prominent placement to sponsored products.\r\n\r\nBy seeking advice from a broker, you can rest assured that you\u2019ll get the best deal that you qualify for, tailored advice throughout and help with all of the paperwork.\r\n<h2 id="broker">Speak to a discount mortgage broker<\/h2>\r\nWe offer a free-broker matching service that can help you find your perfect discount mortgage advisor. Our service takes your needs and circumstances into account before introducing you to a broker whose speciality is discount mortgages, someone who arranges them every day.\r\n\r\nOur broker-matching service won\u2019t leave any marks on your credit report, nor will it cost you a penny to use, but it could save you time, money and disappointment in the long haul.\r\n\r\nCall 0808 189 2301 or <a href="https:\/\/enquiries.onlinemortgageadvisor.co.uk\/match-me-with-a-specialist-broker">fill out an enquiry form<\/a> and we\u2019ll set up a free, no-obligation chat with your perfect discount mortgage broker today.\r\n<h2 id="faqs">FAQs<\/h2>\r\nGot a query about discount mortgages that we haven\u2019t covered yet? Take a look through our FAQ section to see whether your question has been answered there.\r\n<h3>What fees do discount mortgages come with?<\/h3>\r\nThe additional fees and charges that come with a discount mortgage are really no different to other standard mortgage products. You can read all about them in our <a href="https:\/\/www.onlinemortgageadvisor.co.uk\/mortgage-guide\/what-mortgage-fees-should-i-expect\/">guide to mortgage costs and fees<\/a>, but here are some additional costs that you might not know to look out for\u2026<b><\/b>\r\n<ul>\r\n \t<li><b>Arrangement fees: <\/b>An admin fee payable to the lender. They can be as much as \u00a32,000 but can be added to the mortgage if you\u2019d prefer. Just bear in mind that adding it to your mortgage means paying interest on it over a much longer period of time.<\/li>\r\n \t<li><b>Early repayment charges: <\/b>This is a fee you might be liable for if you pay off your mortgage balance early. It\u2019s usually either a set amount, a number of months\u2019 interest or a percentage of the original loan, the outstanding balance or the amount you\u2019ve paid.<\/li>\r\n \t<li><b>Exit fee: <\/b>This is a fee some lenders charge to close off your mortgage when you\u2019re done paying it off. They can range between \u00a350 and \u00a3200 and might be payable if you choose to remortgage with a new lender when your discount period ends.<\/li>\r\n<\/ul>\r\n<h3>What are discount tracker mortgages?<\/h3>\r\nDiscount tracker mortgages are similar products to discount mortgages. The main difference is that they peg their rate to that of the Bank of England, adding a certain percentage to the interest rate. The Bank of England, in turn, pegs its rate to a number of factors related to the\u00a0UK economy, so when times are tough, the bank\u2019s rates rise, which means you get larger repayments and vice versa when its rates drop.\r\n\r\n<b>Example:<\/b> if the Bank of England\u2019s base rate rises by 0.5%, your rate goes up by the same amount. If it drops by 0.5%, your rate drops by the same amount. With a discount tracker mortgage, the lender adds the discount feature, typically for two to three years.\r\n<h3>What happens when my discount period comes to an end?<\/h3>\r\nAt this point, your lender will transfer you onto their standard variable rate and that means the amount you\u2019ll be paying each month could be significantly higher. Many customers choose to remortgage before this point, in the hope of finding a new deal with a discount period.\r\n\r\nMany customers choose to look for advice at this stage whether to transfer to another product with that lender or even remortgage in the hope of finding a new deal with a discount period.