Fee/No Fee & Varying IR's - Which is best?

Sammie_UK1

Hi,
From the three mortgage options below with varying fees and interest rates, how do I work out which one is cheaper in the long run when borrowing say £100k over 35 years on a 5yr deal.


Mortgage A
Interest Rate: 3.99%
Fee: £999 - Added on to mortgage (Borrowing £100k + £1k fee = £101k)
Term: 5yrs


Mortgage B
Interest Rate: 3.99%
Fee: £999 - Paid upfront(Borrowing £100k but paying £1k upfront)
Term: 5yrs


Mortgage C
Interest Rate: 4.19%
Fee : £0 - No fee but higher IR.
Term: 5yrs


How would I work out which one is best?

Bearing in mind that the extra £1k will be added onto the complete term of my mortgage and the interest that goes along with it too.

Thanks.

GMS

Without knowing what rates will revert to at the end of the 5 year fixede period you cannot work out total to be repaid over the term.

Between 3.99 and 4.19% there would be a difference on payments of around £12 per month so around £720 for the 5 year period. Seems daft paying £1000 to save £720.

If the revert rate is the same for all products then any savings need to be made in the fixed period to justify the fee.

Of course of you added the arrangement fee to the loan then you would be paying additional interest on that.

Sammie_UK1

Thanks for the reply GMS..

Okey, so assume I want to clear the extra £1k within the fixed term period for all 3 mortgages; now all the constants/variables are the same..

Would I be right in thinking that the higher IR fee free package would still be better over the 5years?..

Thanks

GMS

If I offered to sell you £7.20 for £10 would you buy it?

If the mortgage was for double then the savings would be double and the fee worthwhile.

Often a low mortgage is better on a fee free deal but it is difficult for people to see past rates.

Whether you pay the fee upfront, add to the loan over the term or pay it off in 3 years there is still a minimum cost of £100 to save less over the 5 years.