Mortgage - pls help I'm confused!

Andrew_M_4

I am just about to buy a house, and have seen two decent mortgage deals;

Nationwide 2 year fixed rate 4.95% - Total fees £599

Northern Rock 1.5 year fixed rate 5.29% - total fees £699, £1000 cashback.

Now, the Cashback offer on the Northern Rock one makes it slightly cheaper, plus I have the advantage of being £1000 in cash richer - useful for buying furniture.

However, the fixed rate runs out quicker.

What will my position be in when the fixed terms expire on these mortgages? Should I expect to pay a higher rate when I transfer to another product or could I get a cheaper rate (assuming Base Rate interest is similar to what it is now when I come to get another mortgage product?

sshnuke

it is slightly cheaper but you are not £1000 better off.

lets say the mortgage is £100,000

Northern Rock @ 5.29% = 601 p/m

Nationwide @4.85 = 575 p/m

Nationwide will save you £100 arrangement fees and over the 1.5 years (£26 * 18 months) an additional £468

Nationwide has saved you £568.

This makes you now only £438 better off rather than the £1000 you started off with. Still a lot of money but hopefully it will put things in perspective a little.

if your mortgage is higher than £100,000 then the saving will correspondingly be higher and in the long term the Nationwide may be a better bet. if your mortgage is considerably less then Northern Rock are well worth considering once you've checked how long before you can transfer.

as for the end of period... it's difficult to say. what if interest rates go up? this means your northern rock might be much higher after the 18 month period.

the majority of homebuyers i have helped have a very short-term view when comparing mortgages as they are understandably concerned about their current cashflow. Northern Rock have taken advantage of this big time.  check out how long before you can transfer both products and do your sums based on your mortgage amount.

use the mortgage calculator here and you can do a comparison: http://www.yourmortgage.co.uk/08calculators/08_calculators2.htm#

monkeyboy72

Be careful with the £1000 cash back, if you choose to remortgage in a few years time to a new lender you will probably have to pay all or part of it back

Andrew_M_4

Yeah- that's the truth - I'd have to pay it back if I changed lenders or products within 3 years, and the fixed rate only lasts for 1.5 years, so it's not worth it at all.

MarkyMarkD

If you want the equivalent of the cashback, there are products from many lenders which charge NO up-front fee, pay a contribution to legal costs and refund your valuation fees.

This is worth as much as a £1,000 cashback really.

And they don't necessarily tie you in for the three years that the NR deal does - you could easily manage to be tied in for only 2 years.

But in general the way things work is that the "fee-free" deals are only really good value for smaller loans (say under £100k although the cut-off varies between products).

Andrew_M_4

Yeah, I'm going to borrow £163K and I reckon the Nationwide one is the best for me.

Fixed at 4.95 for 2 years, 2 year tie in and then reverts to standard rate.

MarkyMarkD

Sounds like a good move, Andrew. Good luck with the mortgage process!

Andrew_M_4

The new FSA standard quotations are very useful for the customer to compare the mortgages. Everything is explained very clearly and it even tells you the amount you pay back for every £1 you borrow.

sshnuke

 :) good luck