Glossary · UK
What is Discount Mortgage?
A variable-rate mortgage priced at a set discount below the lender's standard variable rate for an initial period, so payments rise and fall in line with changes to that lender's own SVR.
Full Definition
A discount mortgage is a type of variable-rate mortgage where the interest rate charged is set at a fixed percentage discount below the lender's own Standard Variable Rate (SVR) for an introductory period, typically two to five years, after which the mortgage usually reverts to the full SVR unless the borrower remortgages onto a new deal. Because the discount is expressed relative to the lender's SVR rather than to a widely published external benchmark such as the Bank of England base rate, the actual monthly payment can change at any point during the discount period if the lender chooses to move its SVR up or down, which happens at the lender's own discretion rather than automatically tracking a specific external rate -- this is the key difference between a discount mortgage and a tracker mortgage, which moves directly and transparently in line with a named external rate. Discount mortgages can offer a genuinely lower rate than an equivalent tracker or fixed-rate deal at the point of taking out the mortgage, but they carry two layers of uncertainty for the borrower: uncertainty about future changes to the base rate and wider market conditions, and additional uncertainty about how a specific lender's SVR will respond to those changes, since SVR movements are not always passed on at the same time, or by the same amount, as changes to the base rate.