Fees included or paid up front, what's the difference

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An Example:
Two Buyers, buying a £100K house have (after paying everyone else their cut) £52K for deposit & bank fees. They are both getting a mortgage with fees of £2K.

Buyer 1 lays down a £50K deposit, borrowing £50K and paying his fees up front. The size of his loan on day 1 is £50K
Buyer 2 lays down a £52K deposit, borrowing £48K and getting the fees added to the loan. The size of his loan on day 1 is £50K.

Buyer 1 has paid a 50% deposit, Buyer 2 has paid a 52% deposit. At those LTV ratios it doesnt make a difference, but think of the case where Buyer 1 pays a 9% deposit, Buyer 2 pays a 10% deposit. Buyer 1 wont get a mortgage but buyer 2 will.

Same goes for higher ratios meaning you could get yourself a cheaper rate.

Thrugelmir

barryireland wrote: »

I don't follow. What is meaningless about it? Two people, with the same amount of money buy a house for the same sum. To add a bit more meaning to the question: There is only one buyer, with a certain amount of money in his pocket, and the lender asks whether or not he wants to pay the fees up front, or roll them into the loan. What should his answer be?

I'm asking whether using some of that money to pay the fees up front makes any difference to the outcome.

The answer can either be yes or no, not "it's meaningless". Either it makes a difference, or it doesn't.

Because they are both borrowing the same amount of money.

barryireland

Thrugelmir wrote: »

Because they are both borrowing the same amount of money.

The same can be said of using a credit card to buy a £200 TV; and putting that same credit card in an ATM, withdrawing £200, and spending that cash on the same TV.

We all know that the latter course of action is ill-advised. So why is it meaningless to ask a similar question about a different form of borrowing?

From your most recent answer, I deduce that rather than, "your question is meaningless." you mean, "yes, you're right, they are exactly the same".

In that case, why is this piece of advice so widespread?

VIGILANT22

You cannot compare as all things are not equal!

The advice re arrangement fees etc...relates to adding fees to yr mortgage thru out the term of the loan as if you add 2k at yr 1 this is compounded until yr 25....if you rmtg in yr 3 and add fees...yr adding yr 3's fees to yr 1's fees and yet again compounded until yr 25

barryireland

VIGILANT22 wrote: »

You cannot compare as all things are not equal!

You keep saying that, with bold text and now even an exclamation mark, but you don't say what isn't equal about it. The amount of money given to the vendor is equal, the amount of money paid up front by the buyer is equal, the total loan amount on day 1 is equal. Which aspect is so desperately inequal as to render these two situations incomparable?

The advice re arrangement fees etc...relates to adding fees to yr mortgage thru out the term of the loan as if you add 2k at yr 1 this is compounded until yr 25....if you rmtg in yr 3 and add fees...yr adding yr 3's fees to yr 1's fees and yet again compounded until yr 25

Right, now that starts to make sense, but even so, if, at year 3, I have an outstanding mortgage of £50K, and £2K of spare savings, then I have the same choice as the first timer, I can get a new mortgage for £50K and pay the fees, or a new mortgage for £48K and roll the fees in. Is that not the case?

VIGILANT22

If the question was "I have a 50k deposit, should I deposit 48k and use 2k for fees or should I deposit 50k and add fees.....then it would follow logic and an answer could be given

But they're not starting out the same 1. deposits 50k the other deposit 52k...so it is not an equal starting place....to make comparisons all things should be equal....yr changing the goalposts.....

barryireland

VIGILANT22 wrote: »

If the question was "I have a 50k deposit, should I deposit 48k and use 2k for fees or should I deposit 50k and add fees.....then it would follow logic and an answer could be given

But they're not starting out the same 1. deposits 50k the other deposit 52k...so it is not an equal starting place....to make comparisons all things should be equal....yr changing the goalposts.....

You appear to be saying that if I have 50K and I have the choice between 48K deposit + 2K fees up front; and 50K deposit + 2K fees rolled in to the loan, you could compare that.

However, if I have 52K, and I have the choice between paying 50K deposit + 2K fees up front; and 52K deposit + 2K fees rolled in, then that is so radically different that the whole idea of comparing them is so absurd, that it needs to be pointed out with Bold Text and exclamation marks!?

That makes no sense whatsoever.

VIGILANT22

No I am saying you only have 50k...one figure 50k...as a starting point...then you can compare...how the h*ll can you compare 50k to 52K????

LittleMissAspie

VIGILANT22 wrote: »

If the question was "I have a 50k deposit, should I deposit 48k and use 2k for fees or should I deposit 50k and add fees.....then it would follow logic and an answer could be given

But that IS Barry's question. Read his first post again; both buyers have 52k in savings and both need to spend 102k.

Buyer 1 makes up the 102k with 50k mortgage deposit, 2k cash for fees and 50k mortgage.
Buyer 2 makes up the 102k with 52k deposit (mortgage deposit and fees rolled into one) and 50k mortgage.

Both buyers are paying the 2k upfront, effectively.

VIGILANT22

barryireland wrote: »

The one paying a 50K deposit is only borrowing 50K, not 52K. He is using the remaining 2K in his pocket to pay the fees.

The one paying 48K deposit is borrowing 50K, having elected to have the fees added to the loan.

As far as I see it, they are exactly the same. Your post brings in a completely different situation, in which the buyer borrows 52K and leaves 2K in his pocket, which is not what I was asking.

LittleMissAspie..This is his post, this is his question