Rate sensitivity calculator
Which deal is better?
Lender A: 2 year: Bank base + 0.7% (3.75 + 0.7) = Pay rate 4.45%. Fee 995.
Lender B: 2 year fixed 5.25%. Fee 995
Consider these two scenarios for a remortgage.
Scenario 1: Bank of England hikes rates by 25 basis points every 3 months. The variable rate will rise to 6.45% in 24 months.
Scenario 2: BoE hikes rates by 25 basis points every 4 months. The variable rate will rise to 5.95% in 24 months.
So in the above example for Scenario 1, if the BoE hikes rates every 3 months by 25 basis points, the variable rate would rise to 6.45% in 24 months.
While in scenario 2, the rate would rise to 5.95% in 24 months.
Which of A or B would be financially better. This is not an easy decision for most brokers as well as clients. Most would plop for the security of the fixed rate as either a 5.95% or a 6.45% in 24 months looks scary.
The calculator shows, based on the above scenario with 25 bps increase every 4 months, it would take 29 months before reaching breakeven point and the rate needs to reach 6.45% during this period. For the rate to reach 6.45% the Bank of England will need to raise the rate to 5.75 in 24 months. Only the most optimistic would think this is a reasonable scenario. So if the rate term exit is 24 months, the lower variable rate would be better for the borrower.
Try the calculator and see if 25 bps hike every three months is beneficial or detrimental.
User Guide
A: Same.
