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MSE News: Mortgage rates at record low, and they may drop further

This is the discussion thread for the following MSE News Story:

"Some brokers believe prices could fall yet more, given few expect the Bank of England base rate to rise any time soon ..."
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Comments

  • Anybody guess whether First Direct will lower their rates soon? I love FD but am coming up for remortgage and will move to a cheaper fix (2yr, Woolwich @ 2.54%) unless FD step up.
  • JimmyTheWig
    JimmyTheWig Posts: 12,199 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    Is it valid to calculate an APR for the "deal" (i.e. tied in) part of a mortgage? As an APR should, this would include fees.
    That's what I would like to see when comparing mortgages.

    They quote an APR for the entire term which, given the deal part is only a small fraction of this, is always pretty close to the SVR that you revert to. On the basis that hardly anyone keeps a mortgage for the full 25 years I see this as a meaningless figure.
    They quote the interest rate for the deal part, but that is pretty meaningless when you have to pay a significant fee to get it. It would be perfectly possible for someone to offer a 0% mortgage rate if the fee was big enough.
    An APR for the deal part of the mortgage would be the best way to compare like with like.

    It would also then be interesting to see if this APR was now the lowest in recent years or if people have been dropping their rates with one hand and raising their fees with the other to make it look good as everyone concentrates on the rate.
  • Leon_W
    Leon_W Posts: 1,813 Forumite
    Part of the Furniture 1,000 Posts Combo Breaker
    As you have worked out JimmyTheWig, the APR is a complete waste of time !

    I have long given up trying to explain this to clients as it just prompts more questions.

    To answer your question, no, it is not valid to calculate an APR for the "deal" because APR is not designed to do that. It has to be the complete term plus exit fees, charges etc etc which brings me back to my first point. It's a waste of time !
  • JimmyTheWig
    JimmyTheWig Posts: 12,199 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    Thanks Leon. But do agree the APR for the deal would be a useful number to calculate?

    E.g. mortgage A has fees of £1000 and charges 3.0% for two years while mortgage B has fees of £500 and charges 3.5% for four years.
    Assuming mortgage A was still available in two years time I would want to know the relative costs of doing mortgage A twice against doing mortgage B. The APR that I am talking about would give that comparison.
  • Consumerist
    Consumerist Posts: 6,311 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    edited 20 July 2011 at 6:24PM
    E.g. mortgage A has fees of £1000 and charges 3.0% for two years while mortgage B has fees of £500 and charges 3.5% for four years.
    Assuming mortgage A was still available in two years time I would want to know the relative costs of doing mortgage A twice against doing mortgage B. The APR that I am talking about would give that comparison.
    The problem, I think, with comparing these two deals in any meaningful way is that the APR would depend on how much you were borrowing. i.e. how large the fee is compared to the size of the loan.
    >:)Warning: In the kingdom of the blind, the one-eyed man is king.
  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    mispost. ...........
  • Consumerist
    Consumerist Posts: 6,311 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    E.g. mortgage A has fees of £1000 and charges 3.0% for two years while mortgage B has fees of £500 and charges 3.5% for four years.
    Assuming mortgage A was still available in two years time I would want to know the relative costs of doing mortgage A twice against doing mortgage B. The APR that I am talking about would give that comparison.
    Perhaps comparing the total costs over the 4-year period may be more useful

    Mortgage A (£100,000)
    £100,000 @ 3.0% pa = £3,000 pa = £12,000 interest (4 yrs) + £2,000 fees = £14,000 total cost

    Mortgage B (£100,000)
    £100,000 @ 3.5% pa = £3,500 pa = £14,000 interest (4 yrs) + £500 fee = £14,500 total cost

    So, for a £100,000 loan, the total cost of 2 times Mortgage A would be £500 less than Mortgage B over the 4-year period.

    Does this sort of calculation work for you?
    >:)Warning: In the kingdom of the blind, the one-eyed man is king.
  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    Perhaps comparing the total costs over the 4-year period may be more useful

    Mortgage A (£100,000)
    £100,000 @ 3.0% pa = £3,000 pa = £12,000 interest (4 yrs) + £2,000 fees = £14,000 total cost

    Mortgage B (£100,000)
    £100,000 @ 3.5% pa = £3,500 pa = £14,000 interest (4 yrs) + £500 fee = £14,500 total cost

    So, for a £100,000 loan, the total cost of 2 times Mortgage A would be £500 less than Mortgage B over the 4-year period.

    Does this sort of calculation work for you?

    On basis of 25 year total term, fees added to mortgage,

    Mortgage A - total repayments £23,218

    Mortgage B - total repayments £24,150

    So B more expensive by £932
  • Consumerist
    Consumerist Posts: 6,311 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    Thrugelmir wrote: »
    mispost. ...........
    Oops! Sorry Thrugelmir, I edited a previous post then decided to make a new post of the edit because it was a bit lengthy.
    >:)Warning: In the kingdom of the blind, the one-eyed man is king.
  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    Oops! Sorry Thrugelmir, I edited a previous post then decided to make a new post of the edit because it was a bit lengthy.

    Though I had lost my marbles........:eek:

    and was on the wrong thread.
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