Discounted rate mortgages are popular with homeowners for good reason, as they help initially to reduce outgoings. However, for the typical borrower avoiding loans with a high ongoing standard rate is more important.

Average homeowners choosing a mortgage with an initial discount and a high ongoing standard rate, will collectively pay £520 million more in interest each year than they would on long term low tracker or standard variable rate (SVR), according to Egg.

The research shows that borrowers on these deals need to remortgage to a new deal within just 14 months of rolling onto the high ongoing rate, or all the value gained by taking the discount is destroyed.

By holding onto the same mortgage for the current average of 5 years, they would pay £1,840.56 more in interest than a homeowner choosing a mortgage with a rate that is consistently no higher than 1% above the Bank of England Base Rate.

Latest estimates from the Council of Mortgage Lenders are that discount mortgages account for a third of all mortgages sold – with the most popular deals offering discount periods of 2 years or less.

Egg’s analysis took account of the lowest 2 year discounted rate mortgage products offered by 8 of the UK’s 10 largest lenders, all of which have standard variable rates of at least 2% above the Bank of England Base Rate and represent 4 out of every 5 discount mortgages sold in the UK today.

The table below compares these lenders’ best discount mortgage deals to a simple variable rate or tracker mortgage that follows the Bank of England Base Rate to within 1%.

This comparison highlights a ‘remortgage zone’ for each product, this is the time period a customer has to remortgage before the expensive standard rate destroys any saving the initial discount provided. Furthermore it shows the extra interest these homeowners would pay if they failed to remortgage within the average 5 years to an alternative deal, compared to choosing the low SVR or tracker mortgage.

Andy Deller, director of banking & insurance at Egg said, "For committed switchers traditional discount mortgages make real sense, however with the current level of apathy among the majority of borrowers, they are likely to end up significantly worse off than if they had chosen a mortgage with a low long term standard rate. These borrowers would be better off looking for discount deals with slightly shorter discount periods that lead into cheaper ongoing rates.”