Discount mortgage

Definition

A discount mortgage is a type of mortgage where the interest rate is set at a certain percentage below the lender’s standard variable rate (SVR) for a specified period.

What is discount mortgage?

The discount is usually expressed as a percentage, and the discount rate determines the actual interest rate charged on the mortgage for the period. For example, if the SVR is 5% and the discount is 1%, the borrower would pay an interest rate of 4%.

The discount period is a fixed timeframe during which the borrower enjoys the discounted interest rate. This period can vary, typically lasting for a few years, such as two, three, or five years.

Once the discount period expires, the mortgage interest rate typically goes back to the lender’s SVR. At this point, the borrower will pay the standard variable rate unless they choose to switch to a different mortgage deal. Since the interest rate is linked to the lender’s SVR, it can vary. If the SVR increases, the borrower’s mortgage payments may rise after the discount period ends.

Some discount mortgages may offer flexibility, allowing borrowers to make overpayments or pay off the mortgage early without incurring significant penalties.

Example of discount mortgage

Let’s say a lender has a standard variable rate (SVR) of 5%, and they offer a discount mortgage with a 1% discount for the first two years. In this case, the borrower would pay an interest rate of 4% during the initial discount period.

For instance, if a borrower has a loan amount of $20,000, the interest payable for the first two years would be calculated as follows:

Year 1: Loan amount x Discounted interest rate = $200,000 x 4% = $8,000

Year 2: Loan amount x Discounted interest rate = $200,000 x 4% = $8,000

After the initial two-year period, the mortgage would typically revert to the lender’s standard variable rate

Clever finance tips and the latest news

Delivered to your inbox monthly

Join the 95,000+ businesses just like yours getting the Swoop newsletter.

Free. No spam. Opt out whenever you like.

Our offices:

Disclaimer: Swoop Finance Pty Ltd (ABN 52 644 513 333) helps Australian firms access business finance, working directly with firms and their trusted advisors. We are a credit broker and do not provide finance products ourselves. All finance and quotes are subject to status and income. Applicants must be aged 18 and over and terms and conditions apply. Guarantees and Indemnities may be required. Swoop Finance Pty Ltd can introduce applicants to a number of providers based on the applicants’ circumstances and creditworthiness, we may receive a commission or finder’s fee for effecting such introductions. Swoop Finance Pty Ltd does not provide any kind of advice and in giving you information about providers products, we are not making any suggestion or recommendation to you about a particular product. Offers of finance are subject to a separate assessment process by the provider and subject to their terms and conditions. If you feel you have a complaint, please read our complaints section which is contained within our terms and conditions.

© Swoop 2025

Looks like you're in . Go to our site to find relevant products for your country. Go to Swoop