product fees vs interest rates

jo_jo_jo

hello - i'm wondering if someone can help unravel a question for me. i'm looking to sort out a remortgage and i can't get my head around whether it's worth going for an expensive product fee to get a cheaper interest rate.

eg: on a mortgage of £180k should i pay £1499 to get an interest rate of 2.89% - or would i be better off getting a rate of 3.99% which only has a product fee of £395.

obviously we'll have a cheaper monthly repayment with the lower interest rate - but is it a false economy? it's such a minefield and i think i've looking at figures for too long !!! :huh:

any opinions??
:beer:

dunstonh

You go for the one that matches your needs (may not be the cheapest but security of fixed rate may be more important than a short term gain on a tracker).

You then cost the the mortgage over the term of the deal and include entry fees, interest paid and exit fees. That should tell you which is cheapest.

sandspider2000

What's the duration of the tie in period? Add the fee to the total cost over tie in period, divide by tie in period and you'll know what you're paying a month, and what the total cost of each option over the tie in period will be.

If you're comparing a fixed rate with a variable product, see Dunstonh's post...

jo_jo_jo

i'm looking at 2 year fixed rates so am comparing like for like. am just trying to work out whether it's worth buying an expensive product fee.

thanks for the advice

dunstonh

2 year fixed rates dont really look like a good idea at the moment. When the recovery comes, you will expect interest rates to start to rise. A short term fix just sees you paying fees and coming out a time that could be very unattractive.

Robert_Sterling_3

jo_jo_jo wrote: »

hello - i'm wondering if someone can help unravel a question for me. i'm looking to sort out a remortgage and i can't get my head around whether it's worth going for an expensive product fee to get a cheaper interest rate.

eg: on a mortgage of £180k should i pay £1499 to get an interest rate of 2.89% - or would i be better off getting a rate of 3.99% which only has a product fee of £395.

obviously we'll have a cheaper monthly repayment with the lower interest rate - but is it a false economy? it's such a minefield and i think i've looking at figures for too long !!! :huh:

any opinions??
:beer:

A bit of simple arithmetic.

One rate is 1.1% higher than the other

On £180,000 1% is £1800 and 0.1% is £180

So 1.1% is £1980 call it £2000

Two year loan so roughly speaking the lower rate saves about £4000

But it costs about £1100 more

So in good round figures the lower rate will save you about £3000 over two years.

I could tell you to the nearest one penny but round figures will do.

jo_jo_jo

hmmm. i was thinking that i should get a longer fixed rate - but my reluctance is because we will probably move within the next 5 years. meaning that although i have LTV rate of about 60% at the mo - if and when we moved, this would change - meaning that we might be eligible to pay an early redemption on the mortgage !!