The proportion of variable rate simulations which lead to smaller total repayments than the fixed rate option has fallen to 16% compared to the base product, which is consistent with a shorter projection period. Hi, can anyone explain to me why a shorter projection period will lead to the decrease in the proportion of variable rate simulations which lead to smaller total repayments than the fixed rate option? Thank you.
In the alternative scenario, the difference is only calculated over the fixed rate period which is reduced to 5 years. Therefore we would expect the different to the fixed rate scenario to be less than the difference to the scenario where the whole 25 years is considered (as it is a shorter period). This check is just saying that this difference is seen in the results as expected. As always with CP2, it wouldn't matter which reasonableness checks you include as long as you include enough for the marks on offer (5 in this question). There are other ideas you can mention too in this question.
