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A discounted mortgage gives borrowers a discount off the mortgage lender's standard variable rate (SVR) for a set period. The mortgage rate you pay moves up or down in line with any changes to the SVR. When the mortgage discount period ends, you normally revert to paying the SVR. This type of mortgage is cheaper in the beginning and allows you to take advantage of any interest rate cuts. But if interest rates rise, your monthly mortgage payments will go up. Discounted mortgages usually have early redemption penalty charges during the discounted period and these may extend beyond the discounted period if the mortgage is particularly cheap. A typical mortgage discount is usually around two per cent below the lender's SVR.
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