Help me decide - my heads exploded!!

truescot

Okay moving house in a few weeks and deciding on products. Currently have 73k with A&L tied in till 30/6/10. I'm porting this across and adding 76k on interest only for first 2 years (wife not working due to babies but will be in 2 years). I have decided on a Tracker so please don't try and dissuade me(!!)

A&L have 2 products and I can't decide the best one.

Option 1:
BoE +0.98% until 30/9/10.
Fee £999 (added to loan)
EARLY REDEMPTION CHARGE 3%
Payments £859.83.

Option 2:
BoE +0.89% until 30/9/10
Fee £1527 (2%)
NO REDEMPTION CHARGE
Payments £857.70


My thinking is basically that Option 1 has a smaller fee and therefore less to repay in the long term, which makes the £48 more over 2 years irrelevant. But also, with option 2, that £48 is in my pocket, rather than paying off damned interest, and when my existing part of the loan comes to the end of the fixed deal, I can redeem it and put the whole lot on a new deal without having to pay the ERC, or waiting the 2 months paying a higher rate on half the loan.

Or is it so close to call that I should just pick one and go for it?

I'm thinking that I am at the level of boprropwing that the difference in fees makes very little difference to which one I choose.

I am an eternal procrastinator because I hate to give money to THE MAN!!!!!

Voyager2002

Are you tied in to A and L? Surely there are better deals out there if you look for them.

A fee of a thousand pounds or more might be worthwhile to save money on a large mortgage over a long time, but you are proposing to pay this fee to borrow a relatively small sum (about half of your mortgage) and the benefit only lasts two years.

I like trackers (and have one myself) but for this level of borrowing I doubt whether the benefit (as compared to any other mortgage) justifies the fee. And the forty-eight pound difference in interest charges is so small as to be irrelevant.

beecher

I'm thinking option 2 might be better because of the 'no redemption charge' - wouldn't this make it easier to tie up your other part of the mortgage in two years time, as at the moment there's 3 months between them?

Would you be adding the fee to the loan or can you pay it up front?

0james0

You will prob find that the £48 saved will be wiped out with your 3 months at A&L's standard variable.

You are right though, it is so close to call.

Personaly I would go for the option with no tie ins so that when the main mortgage finishes you can the bundle both in together for a re-mortgage.

Haven't gone into the figures in detail to confirm it is 100% the cheapest option, but I know for a fact you will get stung when the original mortgage goes to standard variable at 7.00% +.

Worth checking what rate you will go to though as sometimes different deals mean you go onto a different SVR (standard variable)

truescot

Answers to questions:

1. Yes, I am tied in to A&L on my existing loan, 4.99% with a 3% redemption.

2. Just checked and when my existing loan finishes i will go onto BoE plus 0.75%. This is actually better than I thought seeing as the SVR is currently 7.19. At the moment this means that with Option 1 my payments would increase by £30 for the 3 months until I changed the whole lot.

3. I would be adding the fee, which is what my mortgage adviser suggested, however, after reading the "Should I pay off my mortgage" stuff on here, I think I should use some of the profit from our current sale to just pay the fee. We kept 10k behind for solicitors fees/home improvements but some could pay mortgage fees.

I'm thinking that I'm wasting my life away thinking about a few quid but the option with no tie ins could be better as when my existing loan finishes I can change lender and its simpler. I just have this nagging annoyance that I'll have £500 more on my loan.

0james0

I think you have answered your own questions.

Go with the deal with no tie ins as it will make life easier for you. Not only that it wouldn't suprise me if base rate is higher when the time comes to be on SVR.

Pay the fees upfront so there is no interest charged on adding the fee to your mortgage.

Then sit back and smile at the thought you still have half the mortage at 4.99%!

truescot

What a useful little exercise this was, made me think everything through.

I have decided to go for the deal with higher rate but lower fees which I will pay but then overpay immediately (thanks to _Andy_on another thread). This gives me a little more cash immediately with only marginally more expensive monthly payments. the fact that there is a redemption fee obviously means I will have 3 months of my existing loan on a higher rate before I can change deals in 2 years time, but this is set at BoE +0.75%, which given the current climate is pretty good and shouldn't outweigh the savings now of the £999 (AAAAARRRRRRRRGGHHH) fee.

Thanks for the comments...