Mortgage Deals - Brain Fog!
Discussion
I'm comparing two mortgage options. Both repayment over 15 years.
(1) 2-year fix at 1.62% with a monthly payment of £375.70 and £995 in fees. This product offers £250 cashback.
(2) 3-year fix at 1.49% with a monthly payment of 372.18 and £1995 in fees.
I have no plans to sell the property in the three years. Is that additional £1,000 in fees going to save me money with the lower interest rate?
I've worked out that:
(£375.70 x 24) + £995 / 2 = £5,005.90 per year
(£372.18 x 36) + £1995 / 3 = £5,131.16 per year
So that says the shorter term is cheaper, saving £250 + £250 over the two years, but am I selling myself short having to pay another £1k+ in two years, meaning the three-year fix is actually better value?
I feel like this should be obvious but my brain has turned to mush looking at it.
Thanks!
(PS: This is just a question on these two deals, not a question of whether they're the best I could get etc!)
Edited to correct figures!
(1) 2-year fix at 1.62% with a monthly payment of £375.70 and £995 in fees. This product offers £250 cashback.
(2) 3-year fix at 1.49% with a monthly payment of 372.18 and £1995 in fees.
I have no plans to sell the property in the three years. Is that additional £1,000 in fees going to save me money with the lower interest rate?
I've worked out that:
(£375.70 x 24) + £995 / 2 = £5,005.90 per year
(£372.18 x 36) + £1995 / 3 = £5,131.16 per year
So that says the shorter term is cheaper, saving £250 + £250 over the two years, but am I selling myself short having to pay another £1k+ in two years, meaning the three-year fix is actually better value?
I feel like this should be obvious but my brain has turned to mush looking at it.
Thanks!
(PS: This is just a question on these two deals, not a question of whether they're the best I could get etc!)
Edited to correct figures!
Edited by romeogolf on Tuesday 7th July 10:47
romeogolf said:
I'm comparing two mortgage options. Both repayment over 15 years.
(1) 2-year fix at 1.62% with a monthly payment of £375.70 and £995 in fees. This product offers £250 cashback.
(2) 3-year fix at 1.49% with a monthly payment of 372.18 and £1995 in fees.
I have no plans to sell the property in the three years. Is that additional £1,000 in fees going to save me money with the lower interest rate?
I've worked out that:
(£375.70 x 24) + £995 / 2 = £5,005.90 per year
(£372.18 x 36) + £1995 / 3 = £5,131.16 per year
So that says the shorter term is cheaper, saving £250 + £250 over the two years, but am I selling myself short having to pay another £1k+ in two years, meaning the three-year fix is actually better value?
I feel like this should be obvious but my brain has turned to mush looking at it.
Thanks!
(PS: This is just a question on these two deals, not a question of whether they're the best I could get etc!)
Edited to correct figures!
Given the low payment, I assume the balance is low........have you looked at the fee free products as often with lower balances, it works out cheaper to go on the fee free products with the slightly higher rate.....(1) 2-year fix at 1.62% with a monthly payment of £375.70 and £995 in fees. This product offers £250 cashback.
(2) 3-year fix at 1.49% with a monthly payment of 372.18 and £1995 in fees.
I have no plans to sell the property in the three years. Is that additional £1,000 in fees going to save me money with the lower interest rate?
I've worked out that:
(£375.70 x 24) + £995 / 2 = £5,005.90 per year
(£372.18 x 36) + £1995 / 3 = £5,131.16 per year
So that says the shorter term is cheaper, saving £250 + £250 over the two years, but am I selling myself short having to pay another £1k+ in two years, meaning the three-year fix is actually better value?
I feel like this should be obvious but my brain has turned to mush looking at it.
Thanks!
(PS: This is just a question on these two deals, not a question of whether they're the best I could get etc!)
Edited to correct figures!
Edited by romeogolf on Tuesday 7th July 10:47
I understand now.
I am not a mortgage expert by any means. The basic rule of thumb i use is, I will pay the fee out of my pocket. Divide the fee by the term and add it to the monthly, if this is lower than the other offer then it is a good deal. This is what my first mortgage adviser (product adviser at RBS) taught me and she talked me out of what on paper was a good deal but had a high product fee.
As I understand it, the fee is added to the loan amount so you are paying it off for the lifetime of the mortgage, not just over the deal term.(Please correct me if i am wrong)
So based on those numbers, I would go for the 2 year deal, but don't be afraid to look at other deals with no product fee using my rule above.
I am not a mortgage expert by any means. The basic rule of thumb i use is, I will pay the fee out of my pocket. Divide the fee by the term and add it to the monthly, if this is lower than the other offer then it is a good deal. This is what my first mortgage adviser (product adviser at RBS) taught me and she talked me out of what on paper was a good deal but had a high product fee.
As I understand it, the fee is added to the loan amount so you are paying it off for the lifetime of the mortgage, not just over the deal term.(Please correct me if i am wrong)
So based on those numbers, I would go for the 2 year deal, but don't be afraid to look at other deals with no product fee using my rule above.
Sarnie said:
Given the low payment, I assume the balance is low........have you looked at the fee free products as often with lower balances, it works out cheaper to go on the fee free products with the slightly higher rate.....
Yes, balance is around £60k on a £130k property. It's a BTL which might influence things further?rockin said:
What offers are available without the fix?
By the way, you haven't mentioned potential "early exit" charges on the two deals offered. I'll be surprised if there aren't any.
They're £600/£1200 in the first/second year respectively for the shorter fix, and £1500 for the longer fix. That said, I have no plans to sell the property in the foreseeable future, so exit fees are low concern. By the way, you haven't mentioned potential "early exit" charges on the two deals offered. I'll be surprised if there aren't any.
In advance - not a mortgage advisor or any way qualified, just someone who likes spreadsheets.
I've assumed you've added the fees to the load - ignoring whether you do or don't, I think it makes it easier to compare apples with apples (i.e. if you could pay £2k up front for mortgage 2, why can't you overpay mortgage 1 by £1.25k etc), and rolled the cashback back into the mortgage.
Assuming a mortgage of £60k:
After 2 years on mortgage 1, you'll have paid £9,129 in repayments and still owe £53,472 - i.e. each £1 paid off the mortgage cost £1.40
After 3 years on mortgage 2, you'll have paid £13,844 in repayments and still owe £50,678 - i.e. each £1 paid off the mortgage cost £1.49
I think, based on the above, that mortgage 1 is more cost effective.
I've assumed you've added the fees to the load - ignoring whether you do or don't, I think it makes it easier to compare apples with apples (i.e. if you could pay £2k up front for mortgage 2, why can't you overpay mortgage 1 by £1.25k etc), and rolled the cashback back into the mortgage.
Assuming a mortgage of £60k:
After 2 years on mortgage 1, you'll have paid £9,129 in repayments and still owe £53,472 - i.e. each £1 paid off the mortgage cost £1.40
After 3 years on mortgage 2, you'll have paid £13,844 in repayments and still owe £50,678 - i.e. each £1 paid off the mortgage cost £1.49
I think, based on the above, that mortgage 1 is more cost effective.
Sarnie said:
romeogolf said:
I meant whether it might affect whether such products were as easily available. It's already a slightly complicated property, being a conversion above a shop.
Speak to your lender/broker.......... 
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