A discount rate mortgage is essentially a tracker (standard variable rate) mortgage, so it still moves in line with the Bank of England’s Base Rate, the Lenders Libor Rate or the Lenders Standard Variable Rate base rate, but it also has a discount thrown in for a set period of time (typically 1 to 5 years.)

A normal example would be a lender offering 1% -2% off of their standard variable rate for a period of 1 to 5 years.

Similar to a variable rate mortgage, if the base rate goes down so do your mortgage payments. However, with the discount thrown in, it often means that you’ll have a couple years of lower than average payments, which can be of benefit to you if you are a first time buyer and wish to have lower payments in the first few years, or you expect a salary increase over the next few years.

Also like a tracker (variable rate) mortgage, if the rate goes up, so will your payments. Depending on how the rate moves, you may not always know what your mortgage payments are going to be from one month to the next due to fluctuation.

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