Discount Mortgages

How Discount Mortgages Work

Imagine you're at a posh dinner party, and you've got your eye on the last piece of fancy stilton cheese. That's a bit like a discount mortgage, you're getting a nice little deal (the cheese) for a limited time, but once it's gone, it's back to the standard fare. The 'discount' refers to a reduction on the lender's standard variable rate (SVR) for a set period of time, usually 2 to 3 years. This means your mortgage repayments are lower during the discount period, but remember, once that time is up, you're back to the SVR. And like any good dinner party, it's worth keeping an eye on the other guests, or in this case, the Bank of England. Changes in their base rate could see your SVR (and your repayments) go up or down faster than the disappearance of that coveted cheese!

Hidden Charges

Picture yourself delving into a pile of mystery novels at a vintage bookstore. You feel quite chuffed with the bargain until you get to the till and they slap on a 'handling' charge. Much like that unexpected sting, discount mortgages can come with a few not-so-obvious costs that could have you rummaging for extra quid. The most common among these are arrangement fees, which like the name suggests, are charges for setting up the mortgage. These can range anywhere from a couple of hundred to a few thousand pounds. Then, there's the valuation fee, not unlike paying for the pleasure of knowing if a second-hand car is a peach or a lemon. This is a charge for the lender to assess the value of the property you’re buying. In addition, if you decide to jump ship to another mortgage during the discounted period, you might face early repayment charges - a bit like leaving a party early and still having to chip in for the full price of the pizza. So, before you decide to get cosy with a discount mortgage, make sure you've got your reading glasses on and you've gone through the fine print.

Pitfalls to Avoid

Firstly, steer clear of the 'discounted rate' facade. Remember, it's a temporary offering, much like the British summer. So while the initial lower repayments may feel like a gentle spring breeze, be prepared for the potential winter chill when the rates revert to the SVR. Secondly, don't let the fear of missing out rush you into a discount mortgage without considering other options. Like choosing a flavoursome mature Cheddar over an exotic gorgonzola without a taste test, you might be missing out on a potentially better fit for you, like a fixed-rate mortgage. Lastly, never underestimate the small print. It might seem more overwhelming than understanding cricket rules, but it's where the real game is. It includes details about fees and charges that could significantly impact your overall repayment amount. So, put on your reading glasses, grab a cuppa, and make sure you understand it all before you sign on the dotted line.

Success Stories

Now, let's toss the coin and take a gander at the shinier side. Discount mortgages, like a perfectly brewed cup of Yorkshire Tea, can be just the right brew for some. Take the case of Sarah, a first-time buyer from Leeds. Being on a tight budget, she was lured by the lower initial repayments of a discount mortgage. For her, the discount period allowed her to adjust to the financial demands of homeownership while still managing to save for a rainy day.

Or consider the case of the Smiths from Bath who cleverly used a discount mortgage to their advantage. They picked a 2-year discount mortgage and made overpayments during the discount period, reducing their mortgage balance significantly before the rates reverted to the SVR. Like a seasoned contestant on 'Pointless', they played the game strategically and reaped the rewards.

But remember, like any good British sitcom, timing and a bit of good fortune play a crucial role. So, while these stories provide a hopeful perspective, bear in mind that everyone's financial situation and mortgage needs are as unique as their tea preferences.

What is the eligibility criteria?

Now that we've whetted your appetite, you're probably wondering if you're a suitable candidate for this financial feast. Here's the catch: lenders can be as picky as a food critic at a Michelin-starred restaurant. Generally, they'll look at your credit history - the better it is, the more likely you are to get the mortgage, much like how a clean plate gets you the chef's nod of approval. Your income and outgoings are scrutinised too, because lenders want to know you can handle the repayments.

They don't want you biting off more than you can chew after all. You might also need a deposit: typically, the larger your deposit, the better the discount rate you'll get. It's a bit like bulk buying your favourite biscuits - the more you buy, the more you save. It's worth noting though, every lender is unique in their requirements, like a secret recipe. So, you might meet the criteria for one, but not for another.

The Sign-Up Process with Hello Mortgage

So you've decided to take the plunge and apply for a discount mortgage with Hello Mortgage, eh? Well, fear not, because we've made the process simpler than a recipe for beans on toast! To start, you'll need to fill out an online questionnaire. You will then have a choice of booking a telephone appointment (which we recommend) or email us your questions.

One of our mortgage gurus will get in touch with you, think of it as a friendly chin-wag over a cuppa, just without the biscuits.

Once you've had your questions answered and selected your preferred mortgage deal, we'll help you submit the full application to the lender, along with all necessary documents. Then, it's just a matter of waiting for approval. In the meantime, you can put your feet up, grab a cuppa, and dream about the housewarming party you'll throw once you've sealed the deal with your new home.

Are there any alternatives to Discount Mortgages?

Certainly, the mortgage market is as diverse as a pack of Liquorice Allsorts, each with its unique flavour and appeal.

Apart from discount mortgages, you have fixed-rate mortgages, which are like your classic vanilla ice cream, offering predictability and stability with a fixed interest rate for a set period.

Then there's the tracker mortgage, a bit like a roller coaster ride, where your interest rate tracks the Bank of England base rate, with all its ups and downs.

We've also got variable rate mortgages that are a little like the weather in Scotland — you never know when it's going to change! And let's not forget about offset mortgages, the clever little hybrids that let you offset the balance in your savings account against your mortgage debt.