How do I work out which mortgage is cheaper!

Tinkjon

I want to compare two fixed rate mortgages, for their fixed periods only - how do I work out which is cheaper?! The choices are 4.89% with reservation fee of 2.5% of the loan amount (I think this would be about £2k). The other is 5.78% with no fee.

Argh, I really should have paid more attention in maths classes

Arne_2

I am no expert but if you know the monthly amount you could multiply that by the number of months you will pay at fixed rate and add on the fee

getmore4less

There are a few ways to do this

My prefered way is to make the end point the same since this is where you start your next deal from.

Set the target at around the amount a regular repayment loan would be.

so on date in the future my outstanding borrowings will be £xxx.

Starting from today what will I pay to get to that amount.

You have to add the charges to the loans or if paying up front reduce the borrowing on the lower charged loans.

The easy way to do the calculation is to split the loan into two parts

Interest only for the target amount left and repayment for the rest over the short term. then use a calculator like the mortgage one at www.whatsthecost.co.uk

If the borrowings are over different terms it gets a bit more complicated since there are unknowns.

Locoblade

See this thread...

http://forums.moneysavingexpert.com/showthread.html?t=1157173

Download my spreadsheet, put in the relevent mortgage details (include the fee in the loan amount if its added to the loan), then you can look at the table and see how much capital is reduced by at the end of each year, as well as knowing the monthly repayment amount.

Assuming they're 2 year fixes though, I would say the 5.78% would be cheaper overall, in that you will pay more per month but by the end of the term the mortgage will be reduced by more than the sum of those additional repayments due to the large fee involved with the lower rate loan. Looking at it simply, a 2.5% fee spread over 2 years is in effect adding roughly 1.25% to the advertised rate, so would be roughly equivalent to a no fees loan at around 6.2%.

getmore4less

Tinkjon wrote: »

I want to compare two fixed rate mortgages, for their fixed periods only - how do I work out which is cheaper?! The choices are 4.89% with reservation fee of 2.5% of the loan amount (I think this would be about £2k). The other is 5.78% with no fee.

Argh, I really should have paid more attention in maths classes

see above post for prefered method.

For this senario on the limited info there is another way by assuming interest only, not 100% accurate but close enough I think,

Does not matter on the size of the loan because it is a fixed % fee. so here is an example.

£100k loan, fee £2500, saving on interest 0.89% so £74pm on £100k

£2500 @ 74pm @ 4.89% is just under 37 months/over 3 years

Conclusion.
If the fixed rate is less than 3years the fee free is cheaper more than 3years years the fee based loan is cheaper, 3 years not a lot in it so needs the more accurate calculation based on real repayment loans.
This ignores exit fees and follow on rates.

Tinkjon

Wow, that's fantastic - thanks so much everybody!! :T Yup, the 5.78 works out cheaper...

dimbo61

Why 2 years ? are you going to pay off mortgage in 2 years NO ?
Think long term and look at 5 or even 10 year deals.
Fixed gives you security
5.49% fixed for 5 years with YBS fee £1000 for example

Tinkjon

dimbo61 wrote: »

Why 2 years ? are you going to pay off mortgage in 2 years NO ?
Think long term and look at 5 or even 10 year deals.
Fixed gives you security
5.49% fixed for 5 years with YBS fee £1000 for example

I'm not looking at 2 year mortgages - not sure where you got that from? I wouldn't be happy about fixing for 10 years though - you never know if the rates would go down. I'd hate to be paying over the odds for something. Sure, the reverse could happen and I could end up paying more, but 10 years is such a long time to fix for and you never know what your life will be like in 10 years time!