Mortgage rate sanity check - adding fee to loan

[baileywin]

Remortgaging using a broker.

Currently owe £287,292.

Agreed a 5 year fixed mortgage over 28 years.

The broker has suggested the best option is Halifax @ 3.94% with no fee.
They've mentioned there's another Halifax product @ £3.83% with a £999 fee, but that this works out more expensive because I'd be adding the fee to the loan.

These are the rates in question - https://amortgagenow.co.uk/halifax-product-transfe...

I've had a think and plugged some numbers into a spreadsheet but it seems like it doesn't add up to me?

Specifically:
£287,292 @ 3.94% costs £1,413 a month, which is £84,777 over 5 years
£287,292+£999 @ 3.83% costs £1,400 a month, which is £84,001 over 5 years
The 3.83% is £776 cheaper

After 5 years:
On 3.94% I'll still owe £256,200
But on 3.83% I'll instead owe £256,612
So the 3.83% has a higher end balance of £412

But overall I'm still up £364?

I had a similar discussion last time I took a mortgage out and I had to "convince" the broker to let me do it and I want to make sure I'm not doing something stupid!

[Sarnie]

For a direct like for like comparison you need to use the payment of the lower rate, without the fee added and then add the £999 to the total. You are currently comparing the payments which has the £999 fee spread across your 28 year term, where you need to add it to the total payments over 60 months, otherwise its not like-for-like.

When you do that, the difference isn't huge but the lower rate with the fee still works out to be the cheaper product.

[baileywin]

Sarnie said:

For a direct like for like comparison you need to use the payment of the lower rate, without the fee added and then add the £999 to the total.

Thanks for your reply.

I think the broker intimated the lower rate would be better, but not if I added the fee to the loan which is what confused me.

Your way of calculating it makes sense, but what about the balance being different at the end depending on interest rate? I was trying to factor that in as well but I think that might just confuse things further.

[ice729091]

Why would you pay an extra £999 to save £776 ?

Unless I'm missing something the no fee deal appears to work out slightly cheaper.

[baileywin]

ice729091 said:

Why would you pay an extra £999 to save £776 ?

Because I don't think I actually pay an extra £999 - the actual difference in balance at the end after adding the £999 fee, but paying a lower interest rate is only £412. But then I've paid £776 less over the term in repayments.

So you could reword it as "Why would {owe} an extra £412 to save £776 {in repayments}?". I think!