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Discounted Rate Mortgages Offer Biggest Savings
A new study has found that discounted rate mortgages offer borrowers the biggest savings over the course of a year.
Mortgage holders moving to the top discounted rate deal could save £1,930 in the first year after switching, research from Your Move reveals, £100 more than a move to the best-buy fixed rate deal.
"While discounted variable rate mortgages have cheapened, fixed rates have remained, so far, stable," explained Jon Round, remortgage analyst at Your Move.
"Borrowers are still preferring fixed rate deals, not least because these fixed rates are likely to rise over the next few weeks due to increasing concerns about inflation which are threatening to scupper further base rate reductions. It may thus still be wise to choose fixed rates despite the immediate savings on discounted variable rates being higher."
Your Move's remortgage index tracks first year savings achieved from switching from a £100,000 standard variable rate, to the best buy rate in different classes.
The company points out that while two and three-year discounted rate deals are cheaper than their fixed-rate counterparts, fixes have a slight advantage on the five-year horizon.
Over the full term of a mortgage, savings on fixed vs discounted rates are almost identical.
Mr Round commented: "Both fixed and discounted rate mortgages currently offer high first year savings. Savings with discounted rates have shot up over the last month, reaching their highest for more than a year. Although fixed rate deals have changed little over the last month savings with two, three and five year deals have at least doubled since this time last year.
"However, borrowers need to consider the full picture. Although discounted rates offer higher savings this month, fixed rates remain competitive and borrowers on discounted rates need to be fully aware that repayments can increase rapidly if base rates go up."