Lance Falow of The Heathcote Group lends insight into discounted mortgages

The rate of interest offered is discounted meaning that, if the Standard Variable rate (SVR) is 5%, a mortgage discount of 1% for 2 years would mean that a borrower only pays 4% interest.

"The initial discounted period will mean you pay less interest on your borrowing. That could allow you to use the money for something else or perhaps give you some breathing space while you get over the expense of moving house," said Lance Falow, Managing Partner of The Heathcote Group.

Mortgages are different fom many other forms of lending because when the mortgage is arranged a charge is placed on the property which in effect allows the property to act as a guarantee for the money that's borrowed. Should the borrower fail to repay the mortgage under the terms of the agreement, the lender will have recourse to use someor all of the value of the property to recover their money.

Because so many mortgages offer initial discounts on interest rates the companies don't start making any profit on these deals until later into the term - hence they need you to keep a mortgage with them for a few years at least - they'll try to make sure this is done by imposing penalty charges if the borrower leaves before an agreed period of time or by just including a hefty mortgage termination charge.

"Discount rate mortgages can be a useful way for a first time buyer to get on to the property ladder, particularly if incomes are expected to grow in a couple of years time. It is important to always be financially prepared for interest rates increasing after the discounted period elapses. Failing to do so may result in financial difficulties," added Falow.