Discounted Rate Mortgages: FAQs

Whether you’re a first time buyer, scaling up or sizing down, or just looking to get a better deal on your existing payments; mortgages and loans can be complex.

We have recently added Discounted Rate mortgages to our range of products. Here are some useful answers to frequently asked questions to explain what Discounted Rate mortgages are and how they work so you can be fully informed before you apply.

What is a Discounted Rate mortgage?

Put simply, our Discounted Rate mortgage is a tracker mortgage, which offers a discount on the product margin added on top of the Together Homeowner Managed Rate?(THMR), for a period of two years. This means that the interest rate effectively tracks the THMR - so if THMR reduces, the Discounted Rate reduces by the same amount. Once the two-year period is complete, the discount is removed and the interest rate reverts back to our Together Homeowner Managed Rate plus product margin.

It’s designed for people who are looking for a personal mortgage and don’t currently want to fix their interest rate. This can be helpful when it is anticipated that the Bank of England Base Rate or market interest rates may fall, as the nature of the Discounted Rate product means that interest rates and monthly payments could reduce as interest rates reduce (worth noting, the rate could also rise too – read on to find out more).

How does the Discounted Rate mortgage differ from a Fixed Rate mortgage?

With the Discounted Rate mortgage, your monthly payments can increase and decrease throughout the term, based on our Together Homeowner Managed Rate at the time. The Together Homeowner Managed Rate can be influenced positively and negatively by factors such as the Bank of England Base Rate and other reference rates which affect the cost of borrowing.

The Discounted Rate is an option to consider if you expect interest rates to fall, but, if interest rates go up, you could end up unable to afford your new monthly payments.

With a Fixed Rate, you pay exactly the same amount each month at the interest rate agreed at the start of the term for the duration of your fixed rate period, regardless of whether the Bank of England Base Rate or interest rates across the market reduce.

Fixed Rates can provide stability and reduce the risk of unexpected rate increases, but you’ll also not benefit if interest rates go down.

How does a Discounted Rate mortgage differ from a Standard Variable Rate mortgage?

Whilst both mortgages are variable, meaning their interest rates can decrease or increase during the term of the loan, the Discounted Rate differs from the Standard Variable Rate in a couple of key areas:

• It has a lower initial rate during the discounted period – The monthly repayments on the Discounted Rate have a discount applied during the first two years and are lower than our Variable Rate product, saving you money over the two year discounted period.

• It has a discounted period - The Discounted Rate only applies on your first two years of repayments. Once the discounted period ends your rate will automatically track our Together Homeowner Managed Rate, plus product margin, for the remainder of your mortgage.

• It has an Early Repayment Charge – Repaying your mortgage in full during the two years means that you will have to pay an Early Repayment Charge (ERC). If you think you might be able to pay off your mortgage in this time (e.g. you’re expecting to receive a lump sum, from a pension or investment for example), our Variable Rate product could be a better option as it does not have an ERC.

When can a Discounted Rate mortgage be used?

If you’re a personal finance customer, you can use the Discounted Rate on the following products:

First Charge Mortgages

This is the primary mortgage loan secured against your home. These include mortgages for:

• First time buyers
• Remortgaging
• Moving home
• Right to Buy
• Shared Ownership

Second Charge Mortgages

This loan is secured against your home and will run alongside – but independently of – your existing mortgage. These include secured homeowner loans for:

• Debt consolidation
• Home improvement

Is there a cap on how much my payments can decrease?

No, we don’t put a cap on how much you can potentially save. If the Together Homeowner Managed Rate (THMR) is reduced, your payments will be reduced.

Can I overpay on my Discounted Rate mortgage?

Absolutely – With Together, you can overpay by 5% without incurring any Early Repayment Charges. By choosing to pay more than you are required to, you will reduce your mortgage at a quicker rate.

Overpaying on your mortgage can cut down the overall time it takes to pay off the home loan, potentially reducing the amount of interest that you’ll pay overall.

What happens at the end of the two-year term?

At the end of the two-year term, your mortgage will automatically track our Together Homeowner Managed Rate plus product margin, for the remainder of your mortgage. The discount period will have expired, so your monthly repayments will increase.

You could choose to switch to another product, but you’ll have to pay completion fees on your existing mortgage agreement, and arrangement fees on your new mortgage. These fees can add up so it’s worth checking if switching your mortgage could cost you more in the long run.

What are the risks of a Discounted Rate mortgage?

• Your monthly payments can increase as well as decrease.

• You will need to pay an early repayment charge (ERC) if you want to complete your repayment within the two-year term.

Any property used as security, including your home, may be repossessed if you don't repay your mortgage.