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    • atruefaker
    • By atruefaker 4th Oct 17, 9:13 AM
    • 121Posts
    • 17Thanks
    atruefaker
    Mortgage fixed for 5 years with fee/ no fee
    • #1
    • 4th Oct 17, 9:13 AM
    Mortgage fixed for 5 years with fee/ no fee 4th Oct 17 at 9:13 AM
    Wondering if I can get some friendly advice please.

    I’ve been offered the following 5 year fixed from Santander:

    1.99% + no fee
    1.79% + £999 fee

    Mortgage: @ 307000

    Also got the 123 account, means you get £10 cashback on your mortgage each month.

    I have done some calculations and the 1.99% comes out cheaper over the 5 Years. However, ever few months I might overpay by £500-£1k.

    Does overpaying now and then mean the lower rate of 1.79% + fee is actually the better option?

    Thanks in advance.
Page 1
    • getmore4less
    • By getmore4less 4th Oct 17, 11:35 AM
    • 29,995 Posts
    • 17,927 Thanks
    getmore4less
    • #2
    • 4th Oct 17, 11:35 AM
    • #2
    • 4th Oct 17, 11:35 AM
    I have done some calculations and the 1.99% comes out cheaper over the 5 Years. However, ever few months I might overpay by £500-£1k.
    you might need to review your calculations

    Over paying favours the higher rate a bit but not much on a £300k mortgage.

    rough calculation
    0.002*£307,000*5= £3070 which is a lot more than the fee so fee is better by £2069 (will be less for a repayment)

    Real calcs add the fees and see how much is left in 5 years

    on say 20year term about £1300pm

    £307,000 @ 1.99% £1300pm £257,149
    £307,999 @ 1.79% £1300pm £255,280

    £1,869 better off with the fee.

    even £3000pm payment the fee deal is better
    £307,000 @ 1.99% £3000pm £149,996
    £307,999 @ 1.79% £3000pm £148,660

    £1,336 better with the fee

    £5370pm ( the max for 5years )
    £307,000 @ 1.99% £5370pm £610
    £307,999 @ 1.79% £5370pm £18

    £592 better off
    Last edited by getmore4less; 05-10-2017 at 5:17 AM.
    • atruefaker
    • By atruefaker 4th Oct 17, 8:45 PM
    • 121 Posts
    • 17 Thanks
    atruefaker
    • #3
    • 4th Oct 17, 8:45 PM
    • #3
    • 4th Oct 17, 8:45 PM
    Thanks for your post.

    I used a mortgage calculator on "this is money" and the calculations are different to yours, when not incorporating overpayments. I am confused by your calculations as I have worked out a difference of £743.86 (£89,488.90 - 88,745.04), which would mean going for 1.79%+fee is more expensive compared to the 1.99% deal.

    Am I missing something?

    Monthly payment
    Find out monthly payments and compare the cost of mortgages over the initial deal period including arrangement fees.
    Amount borrowed:£307000
    Arrangement fee:£0
    Term: (years)21
    Interest rate: (actual interest rate & not the APR) 1.99%
    Initial deal period: (years / months) 5yrs
    Results
    Total monthly payment: £1,491.48
    Total charge: £68,853.40
    Total repayment:£375,853.40
    Cost over deal period inc fee: £89,488.90

    2nd Comparison calculator:
    Amount borrowed:£307000
    Arrangement fee:£999
    Term: (years) 21
    Interest rate: 1.79%
    Initial deal period: (years / months) 5 yrs

    Results
    Total monthly payment: £1,462.43
    Total charge: £62,532.35
    Total repayment:£369,532.35
    Cost over deal period inc fee: £88,745.04
    • getmore4less
    • By getmore4less 4th Oct 17, 9:52 PM
    • 29,995 Posts
    • 17,927 Thanks
    getmore4less
    • #4
    • 4th Oct 17, 9:52 PM
    • #4
    • 4th Oct 17, 9:52 PM
    those numbers include the fee so the low rate + fee is lower cost over 5 years

    BUT usual error many make is the difference in debt at the end has not been included.


    lower rate even with a lower payment pays off more debt
    • atruefaker
    • By atruefaker 4th Oct 17, 9:59 PM
    • 121 Posts
    • 17 Thanks
    atruefaker
    • #5
    • 4th Oct 17, 9:59 PM
    • #5
    • 4th Oct 17, 9:59 PM
    Thanks, so if I didn't have the fee to pay then I'd actually be £1742.86 better off overall (£999+ £743.86)?

    I'm hoping I am getting this!
    • getmore4less
    • By getmore4less 5th Oct 17, 5:41 AM
    • 29,995 Posts
    • 17,927 Thanks
    getmore4less
    • #6
    • 5th Oct 17, 5:41 AM
    • #6
    • 5th Oct 17, 5:41 AM
    NO still not there ,

    That calculator is useless for comparing two mortgages for the rate<->fee trade off.
    (http://www.thisismoney.co.uk/money/mortgageshome/article-1633400/Mortgage-calculator-Compare-true-cost-rates-fees.html)

    You need to look at how much is left on the the mortgage at 5 years that calculator only looks at monthly payment and fees.

    for your 21y term and payments after 5 years
    1.99% £1,491.48 £245,079
    1.79% £1,462.43 £244,000

    Difference in payments is £29.05 * 5* 12 = £1743 - £999 = £744 better off with the fee.

    But after 5 years the debt is lower by £1079 to make the total better off after 5 years £1823 by taking the 1.79 with the £999 fee

    (which is close enough to the £1,869 I got with 20y term)
    Last edited by getmore4less; 05-10-2017 at 9:41 AM.
    • amnblog
    • By amnblog 5th Oct 17, 8:00 AM
    • 9,857 Posts
    • 3,821 Thanks
    amnblog
    • #7
    • 5th Oct 17, 8:00 AM
    • #7
    • 5th Oct 17, 8:00 AM
    This high end maths is all very nice but basically unnecessary.

    If you owe £307,000, then 0.2% difference in rate is worth close to £600 in interest cost in year one (allowing for capital reducing and interest with it).

    You need to save over £999 in interest over 5 years to cover the fee.

    Even if you were paying off the capital at a rapid rate like £2,000 a month for example, you would still owe £259,000 at the end of year two and therefore the interest difference is worth at least £500 in the second year.

    It is difficult to see how over 5 years and 0.2% saving in rate is not worth £999.
    I am a Mortgage Broker

    You should note that this site doesn't check my status as a Mortgage Broker, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
    • atruefaker
    • By atruefaker 5th Oct 17, 11:37 AM
    • 121 Posts
    • 17 Thanks
    atruefaker
    • #8
    • 5th Oct 17, 11:37 AM
    • #8
    • 5th Oct 17, 11:37 AM
    Thank you to both of you for your advice.

    I will secure the 1.79% with fee then.
    • d_seng
    • By d_seng 5th Oct 17, 11:48 AM
    • 16 Posts
    • 1 Thanks
    d_seng
    • #9
    • 5th Oct 17, 11:48 AM
    • #9
    • 5th Oct 17, 11:48 AM
    Yes, in my experience (1 mortgage + 3 remortgages) the math is favourable when you pay the fee upfront.
    • getmore4less
    • By getmore4less 5th Oct 17, 11:56 AM
    • 29,995 Posts
    • 17,927 Thanks
    getmore4less
    Yes, in my experience (1 mortgage + 3 remortgages) the math is favourable when you pay the fee upfront.
    Originally posted by d_seng
    When comparing deals it makes a tiny difference as you are just borrowing less on both.
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