Mortgage rates ~confused!

funkyorange

Hi People,

I am looking into mortgages and looking for the best product. I have decided on my circumstances a 2 year tracker would be the best product.

Now I am trying to get my head around mortgage interest rates.

Looking at a simple mortgage calculator with loan value, term and interest rate I put in a rate I see on a mortgage I have quote for and the monthly payment is different why is this?

Also I see a particular mortgage is 3.0% however another mortgage is 4.6% but the monthly repayment is less! So I am confused by this.

So should I just be looking at monthly payment and also how can I calculate how much the monthly repayment cost will be, any help would be much appreciated!

CLAPTON

what figures are you quoting for the 'interest rate' ?
the initial rate or the overall APR

funkyorange

Sorry the interest rate here in all cases is the overall cost for comparison.

AskMeAnother

I would advise you not to get too hung up on the APR rate on mortgages. This assumes that you never change your mortgage and simply go onto the standard variable rate at the end of your initial deal.

In reality most people will look around for another good deal at the end of the 2 year tracker (for example in this case).

The comparison should therefore be drawn on the total cost over a 2 year period in this case. There are not many comparison websites that will do this for you. So either try and work it out yourself or speak with a broker who will automatically work out the best deal based on this anyways.

TrickyDicky101

Don't use the APR (overall cost for comparison). You need to use whatever the initial rate is.

AskMeAnother

TrickyDicky101 wrote: »

Don't use the APR (overall cost for comparison). You need to use whatever the initial rate is.

Not just the initial rate - you also need to include the fees. Either work it out as a percentage of your loan and divide that by the number of years the deal is for, then add that on to your rate.

Or, multiply your mortgage payment by 24 (for 2 year deals ofc) and add the fees on. This gives you the total payable over the given period and therefore you will arrive at which deal is mathemtically best for you.

TrickyDicky101

AskMeAnother wrote: »

Not just the initial rate - you also need to include the fees.

To determine the full economics yes, but to work out what your monthly payment is you just need the mortgage balance (which may include capitalised fee costs), term and initial interest rate.

AskMeAnother

sorry, Mis-read the OP - you're quite right

TrickyDicky101

I think you make a good point though - with only a 2 year deal the size of the fee could be a very significant determinant between which deal is best. The monthly payment is only one component.

funkyorange

OK great stuff yes I will do that.

So add up all the monthly costs then fees and anything else then divide by the number of months payable.

Maybe I just dont understand this but, when I use a mortgage calculator how come when I put in say a total amount, deposit and interest rate the monthly repayable is always different to when I see in the quotes I get. Shull I forget interest rates altogether?! What is the standard variable rate default that is you go onto by default?

funkyorange

Ok I have just got it the initial rate is the duration of the product then the next rate is the default the rate the product goes to once expired!

So whats the point of mortgage comparison websites having the column "average cost for comparison". Like you say this shouldn't be used, but the metric almost describes it being the value that needs to be compared to other products. Now gone are the days of sticking to one product for a entire mortgage I find this to be quite misleading!