Discount Rate Mortgage
Discount rate mortgages are one of the popular kinds of mortgage in the UK mortgage
market which is considered one of the most innovative and competitive in the world.
Mortgage market in UK facilitates borrowers and lenders e.g. organizations such as building societies, credit unions or proprietary lenders including of banks. The government in UK does not interfere in mortgage market; however, the interference can be sought during recessions and bankrupt mortgage companies can be nationalized e.g. nationalization of Northern Rock.
Innovation is one of the fundamental features of mortgage market in UK. From early 1980s, UK deregulated mortgage market in UK and various new mortgage companies came in to attract borrowers and help them out in financial crisis. Among varied kinds of mortgages, discount rate mortgages are popular for the mortgage offers borrowers a lower rate of interest for part of the mortgage term. An umpteen range of information is available over internet for borrowers interested in to buy a discount rate mortgage.
There are various advantages and disadvantages of discount rate mortgage and the two should be analyzed well before taking it. Some visible advantages of discount rate mortgage such as these are ideal for first time home buyers or they can be availed at attractively low interest rates, etc. are considered among the bait for borrowers. Moreover, discount rate mortgages attract and facilitate first time home buyers in the most deliberate manner.
Ideally, the interest rate of the loan is lower than the Standard Variable rate (SVR) for certain years of the beginning which helps improve initial affordability. Discount rate mortgage helps professionals who do not have affordability at the beginning but hope a growth in income in couple of years but at the same time do not want to miss on buying a property. Similarly, discount rate mortgage facilitates reduced monthly interest rates and mortgage payments.
Selection of time period for discount interest rate can be done by the borrower depending upon his capability and intent. Buyers who wish to spend money on buying paraphernalia for home can choose a long time of a year or two or those who wish to pay late can choose even more. Moreover, the longer the discount lasts, the smaller the reduction is in discount rate mortgage in UK. Similarly, borrowers can benefit from the base rate reductions by the Bank of England as any benefits accrued from it are offered to borrowers.
There are certain disadvantages of
Discount Rate Mortgages in UK too and one of them is that there is long time for redemption as more favorable discounted deals outcome in long lasting deals. Moreover, if the borrower is required to pay penalty in case there is long time to discount rate as it amounts to low interest for long time and in order to fill the gap, there is penalty for non-payment. Similarly, there is increased volatility in discount range mortgage as any changes to interest rates made by the Bank of England affect monthly mortgage repayments by the borrower.
Discount Rate Mortgage
By: ruthmillers
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