Discount mortgages

This all depends on how much your discount was and how much the lender’s SVR has changed over the course of the introductory offer period. 

Lenders are free to change their SVRs whenever they like, but - for competition reasons - they tend to move up and down in line with the Bank of England’s base rate. 

Irrespective of this, you will still pay more than you were paying on your discount rate once that deal ends.

Early repayment charges (ERCs) are penalties for leaving a deal before the end of the term. They tend to be higher at the beginning of the deal period and reduce towards the end, but can be multiple thousands of pounds in some cases.

Some lenders also charge ERCs if you overpay your mortgage by more than a certain amount per year, usually 10% of the balance.

Discount mortgages offer a lower rate of mortgage interest for a set period of time; cashback mortgages give you cash upfront once your mortgage application has been finalised. 

Cashback can be a feature of a discount mortgage, just as it can be offered with a fixed-rate or tracker deal. However, while cashback deals can look impressive at first, they often come at the cost of a less impressive discount on the interest rate, so you need to weigh up what is more important to you: short-term or long-term benefits.

If you want to cut down the time it takes to pay off your mortgage, you can make overpayments – where you pay more than your contracted monthly fee. Doing this can save you thousands of pounds in interest. 

But while most mortgage lenders allow you to overpay by a certain amount - say up to 10% of the mortgage value - penalty-free, making larger mortgage overpayments during your initial deal period could result in early repayment fees (see above).

The level of discount you get on your discount rate has no impact on the level of risk involved in using this rate type. A discount rate is risky because it's a variable rate, which means it can go up during the initial term - more specifically, whenever the lender decides to change their SVR.

You could argue that a larger discount might lead you into a false sense of security. This is true at any discount level, but the larger the discount, the larger the jump in payments will be once the discount period ends, and you revert to the lenders full SVR.

However, having a larger discount, doesn't increase the chance of this happening - so as long as you're aware, discount rates can be a useful way to reduce your initial monthly mortgage repayments.