To tempt new customers most lenders will offer a new borrower a discount on their standard variable rate, for a set period.
Your payments will go up and down, as with a standard variable mortgage, but you’re paying less.
After the agreed set period the interest rate will switch into the mortgage lender’s usual variable rate.
So it may be worth checking what their track record has been for their variable rate charge because, if they’re pricier than most, they’re unlikely to have changed and you may end up being one of the mugs paying over the odds.
The rate for new borrowers is usually lower than for existing customers. So try to shake off that customer inertia and change mortgage lenders every couple of years – having checked, of course, that there’s no penalty for leaving.
The penalties for changing to another mortgage lender may last longer than the agreed discount term. But they’re usually less than for a fixed rate period.
Good points: You’re paying less. Doh!
Bad points: You’re locked in for the agreed term so if the interest base rate goes up you’re stuck. However when the period ends, you can swan along to the next best discount rate.
The shorter the term the better. You probably don’t want to tie yourself down for longer than 2 years.
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