Echo Finance

DISCOUNT MORTGAGES

This is a discount off the lender’s standard variable rate (SVR) and only applies for a certain length of time, typically two or three years.

But it pays to shop around. SVRs differ across lenders, so don’t assume that the bigger the discount, the lower the interest rate.

Example

Two banks have discount rates:

  • Bank A has a 2% discount off a SVR of 6% (so you’ll pay 4%)
  • Bank B has a 1.5% discount off a SVR of 5% (so you’ll pay 3.5%)

Though the discount is larger for Bank A, Bank B will be the cheaper option.

Advantages

  • Cost – the rate starts off cheaper which will keep monthly repayments lower
  • If the lender cuts its SVR, you’ll pay less each month

Disadvantages

  • Budgeting – the lender is free to raise its SVR at any time
  • If Bank of England base rates rise, you’ll probably see the discount rate increase too

Their interest rates are variable and offer a discount on the lender's SVR. This means they will be a set amount below the SVR and will go up and down whenever it changes (and will change by the same amount).

The discount is usually around one or two percent less than the lender's standard variable rate and will last for a set period of a year or more.

For example: You take out a mortgage with a 2% discount. The SVR is 5% at first, so you pay 3%. After a year, the lender raises its SVR to 6%, so your new interest rate is 4% and your monthly payments increase.

Watch out for:

  • Charges if you want to leave before the end of the discount period
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
IF YOU ARE THINKING OF CONSOLIDATING EXISTING BORROWING YOU SHOULD BE AWARE THAT YOU MAY BE EXTENDING THE TERMS OF THE DEBT AND INCREASING THE TOTAL AMOUNT YOU REPAY.
Echo Finance

Registered in England and Wales No. 6939070. Registered office - The 1812 Building, Wheatley Park, Mirfield, West Yorkshire, WF14 8HE. Echo Finance Limited is authorised and regulated by the Financial Conduct Authority. Echo Finance Limited is entered on the FCA register (www.fca.org.uk) under reference 570073. The Guidance and/or advice contained in this website is subject to UK regulatory regime and is therefore restricted to consumers based in the UK. The Financial Conduct Authority does not regulate Will Writing, Estate Planning and some forms of Mortgages. © Copyright Echo Finance Limited. Where you have a complaint or dispute with us and we are unable to resolve this to your satisfaction then we are obliged to offer you the Financial Ombudsman Service to help resolve this. Please see the following link for further details: www.financial-ombudsman.org.uk.

Echo Finance Limited

The 1812 Building, Wheatley Park, Mirfield, West Yorkshire, WF14 8HE

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