As a homeowner you may be considering as to whether to choose a fixed rate remortgage product or a discounted rate remortgage product, yet you are unsure about the definite differences and distinctions of each remortgage product. Your decision will be clearer after an evaluation of your monthly household budget and your ability to handle a fluctuation in your budget should there be an interest rate hike causing your monthly mortgage payments to increase. If the fluctuation in the interest rate that your budget can bear is small, then you should keep that in mind before choosing the risky discounted rate remortgage product. Taking a closer look at both a fixed rate remortgage and a discounted rate remortgage will help you best determine which remortgage product best suits your financial health.
A fixed remortgage product will allow you to sleep at night with absolutely no worries if the interest rate happens to spike up one day, at least for the term in which your remortgage deal is obtained. If you get a 2 year fixed remortgage then you will have two years in which the interest rate can rise without it impacting your monthly mortgage payments. That is a definite advantage to the fixed rate remortgage product and why it is usually the most sought out by those on a tight household budget. Living each day and sleeping each night knowing the monthly mortgage will remain the same no matter what happens to the interest rate is comforting to those that cannot bear much fluctuation in their monthly mortgage payments.
Understand before we go further into discussion that every household is different, and every person has a different way of viewing risk. Each household has different levels of risk they can afford to undertake, especially when it comes to a mortgage payment. That brings us to the discounted remortgage product. If you are the type of person who can handle both the uncertainty in the mortgage’s interest rate changing and the monthly payment going up with a short amount of notice, then take a look at a discounted rate remortgage. There are advantages such as the interest rate. The starting interest rate on a discounted rate remortgage will be lower than most all other remortgage products due to the risk involved, although the rate on the discount is always vulnerable to change according to the economic climate.
A discounted rate remortgage involves an interest rate that is based on a discount from the lender’s standard variable rate. A lender’s standard variable rate is not subject to the increases and decreases of the Bank of England’s standard variable rate. Instead, the lender’s standard variable rate rises and falls at the whim of the lender. So the interest rate on a lender’s standard variable rate can rise and fall at any time, and so can the discounted rate remortgage since it is a discounted interest rate based on the lender’s standard variable rate. The discount is offered by the lender for a set period, with the better interest rate to be found on the shorter discount period. The shorter the discount period afforded to the homeowner then the better the interest rate that can be obtained and of course this is due to the risk involved in obtaining such a remortgage deal. For example, the discount could be at 1 per cent for 2 years of the lender’s standard variable rate of 4 percent, so the remortgage interest rate at the beginning would be 3 per cent for as long as the lender left their standard variable rate at 4 per cent. This discount would be afforded for a 2 year time period. If in that time period the lender raises or lowers their rate then the homeowner would realize the 1 per cent discount off of the level of the lender’s rate. A good thing with this type of rate is that there are savings to be had if the rate lowers, while a fixed rate would offer no savings for the interest rate would never decrease over the course of the remortgage deal.
In comparing the fixed rate remortgage and the discounted rate remortgage the greatest difference is the amount of risk involved in obtaining one product over another. The level of the interest rate that could be obtained in a short term fixed rate remortgage would not be as attractive as that of a short term discounted rate remortgage, making the difference of the interest rate that could be found another gap between the two products. They are however alike in that they are each fine remortgage products for the right household budget.
