Compare discount mortgages
Discounted Mortgages
What are discount mortgages?
A discount mortgage (also called a discounted variable-rate mortgage) is a home loan where your interest rate is set a fixed amount below your lender’s standard variable rate (SVR) for an agreed period. Because the lender can change its SVR, your rate and monthly payments can go up or down during the deal, but your rate stays the same amount below the SVR.
The discount can apply for a set period, such as two, three or five years, or for the lifetime of the mortgage. When a fixed-period discount ends, you’re normally moved onto the lender’s SVR unless you choose a new deal.
How do discount variable-rate mortgages work?
A discount variable-rate mortgage works like any standard repayment mortgage: you make monthly payments that cover both the capital you borrowed and the interest you owe. These payments are calculated so your mortgage is fully repaid by the end of the term.
How your interest rate is set
Instead of having a fixed rate, your lender gives you a discount off its standard variable rate (SVR). The size of the discount varies between lenders and products. Because your rate follows the SVR (minus the discount), your monthly payments can go up or down whenever your lender changes its SVR.
Example of how payments change
Lender’s SVR: 5%
Discount: 1.5%
Your interest rate: 3.5%
If the SVR rises to 6%, your rate increases to 4.5%, and your repayments go up. If the SVR falls to 4%, your rate drops to 2.5%, making your monthly payments cheaper.
This is an illustrative example only. These figures are not a real product or a current rate.
What affects changes to the SVR?
Lenders typically update their SVR based on:
their own funding and operational costs
wider market conditions
internal pricing decisions
While the SVR isn’t directly tied to the Bank of England base rate, it’s often influenced by movements in the base rate.
Minimum rate (“floor”)
Many discount mortgages include a rate floor (sometimes called a 'collar), which prevents your interest rate from dropping below a certain level. This means your repayments can’t fall indefinitely, even if the SVR decreases significantly.
What’s the difference between discount, tracker and fixed-rate mortgages?
The main difference is what your rate is linked to and whether it can change during the deal.
| Type | What your rate is linked to | Can your rate change during the deal? | Who it might suit |
|---|---|---|---|
| Discount | Your lender’s SVR, minus a set discount | Yes. It can change whenever the lender changes its SVR. | People who could afford higher payments if the SVR rose and want a rate below the SVR |
| Tracker | An external rate, usually the Bank of England base rate, plus a set margin | Yes. It changes when the rate it follows changes. | People who want their rate to follow the base rate and could afford it moving |
| Fixed rate | A rate set by the lender and fixed for the deal period | No. It stays the same for the fixed period. | People who want certainty about their monthly payments |
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How much can I save with a discount mortgage?
A discount mortgage rate is set below your lender’s SVR, so it’s often lower than the rate you would move onto at the end of a deal. How much you save depends on the size of the discount and how your lender changes its SVR over time.
A discount mortgage may offer good value if rates stay stable or fall. But if the SVR rises, your repayments can increase quickly, and a fixed-rate or tracker deal could work out cheaper overall.
If you prefer predictable monthly payments, a fixed-rate mortgage may be a better fit.
How long does a discounted mortgage deal last?
Most discount mortgage deals last two, three or five years, though some offer longer terms and a few provide lifetime discounts that run for the full mortgage term. Longer discount periods can come with smaller discounts.
If you leave the deal early, you’ll usually pay an early repayment charge. When the discount ends, you’re normally moved onto the lender’s SVR unless you switch to a new mortgage.
Is a discount mortgage right for me?
A discount mortgage may suit you if you could afford higher payments should your lender raise its SVR. It may not suit you if you need to know exactly what you’ll pay each month.
It may suit you if:
you could afford higher monthly payments if your lender raised its SVR
you want a rate that sits below your lender’s SVR without being linked to the base rate
you’re comfortable with your payments changing during the deal
It may not suit you if:
you need to know exactly what you’ll pay each month
a rise in your payments would be hard to manage
you might want to leave the deal early (check for early repayment charges)
If you’re not sure, a mortgage expert can compare discount mortgages with other deal types for your circumstances.
Advantages and disadvantages of a discounted mortgage
Discount rate mortgages FAQs
What happens when the discount ends?
You'll automatically be moved to the lender’s standard variable rate (SVR), meaning you might pay more each month. At this point, you can usually save money by remortgaging to a new deal, either with the same lender or a different one. You can choose another discount mortgage, a tracker or a fixed-rate deal.
Can I pay off my mortgage before the term ends?
Yes, but many lenders will charge you for this. Discount mortgages usually impose an early repayment fee if you repay your mortgage or switch deals before the discount period ends.
Can first-time buyers get a discount mortgage?
Yes, some discount mortgages are available to people who are looking to buy their first home.
What’s the difference between a discount mortgage and a tracker mortgage?
A discount mortgage follows your lender’s standard variable rate (SVR), which the lender controls. A tracker follows an external rate, usually the Bank of England base rate, so it changes when that rate changes. Both can rise or fall during the deal.
Can I get a discount mortgage when I remortgage?
Yes. Discount mortgages are available when you remortgage as well as when you buy, subject to the lender’s criteria. It’s worth comparing them with other deal types before you decide.
What is a 2-year discount mortgage?
A 2-year discount mortgage gives you a rate set below the lender’s SVR for two years. When the two years end, you’re normally moved onto the lender’s SVR unless you choose a new deal, so it’s worth looking at your options before your deal ends.
What is a lifetime discount mortgage?
A lifetime discount mortgage keeps your rate below the lender’s SVR for the whole mortgage term, rather than for a set period. Your rate can still go up or down whenever the lender changes its SVR.
Are discount mortgages a good idea?
It depends on your circumstances. A discount mortgage may suit you if you could afford higher payments should your lender raise its SVR. If you need certainty about what you’ll pay each month, a fixed-rate mortgage may suit you better.
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