True Mortgage Comparison

GSXRCarlos

Hi all,

Just looking at re-mortgaging (can't believe it's almost 3 years already!!!) and was wondering is anyone has a true mortgage comparison.

I'm interested in all the up front costs and working out which different mortgages (2 year fixed no fee, 2 year fixed plus fee, 3 year fixed no fee, 3 year .......) actually work out best for mothly repayments and reducing the mortgage owed figure

Has anyone done anything like this before?

I currently use someone elses mortgage spread sheet to track month to month on my existing mortgage and might just expand this if there are no responses

Did that make sense???

Thanks in advance

harvey115

Try the Locoblade's spreadsheet - https://forums.moneysavingexpert.com/discussion/1157173

JimmyTheWig

Makes total sense, Carlos.

It's what the APR is designed to do - i.e. include all charges, etc, to give you a true cost of the borrowing.
But an APR for a mortgage is about as useful as an APR for a payday loan. It gives a meaningless figure because most of the mortgage term is on the standard variable rate when in reality the chances are that you will remortgage way before the end of the term and so the SVR is way less relevant than it is made out to be.

What I do, as a rule of thumb at least, is make the fees a percentage of the balance and split that across the length of the deal.

E.g. 1
Mortgage balance £100,000. 3 year fix at 4.0%. Fees £1,500.
£1,500 / £100,000 = 1.5%.
1.5% split over 3 years is 0.5% a year.
So cost of deal is 4.5%.

E.g. 2.
Mortgage balance £50,000. 3 year fix at 4.0%. Fees £1,500.
£1,500 / £50,000 = 3.0%.
3.0% split over 3 years is 1.0% a year.
So cost of deal is 5.0%.

E.g. 3
3 year fix at 4.7%. No fees.
Cost of deal is 4.7%.

Note that the deal is the same in examples 1 and 2, but the percentage cost is different.
The (fictional) examples show that for a £100,000 mortgage the lower interest deal is best, despite the fee, but for a £50,000 mortgage the fees-free deal is best, despite the higher interest rate.

ACG

I know this doesnt help you, but as advisors we have software that does all of this for us in seconds. Unfortunately its software you have to pay for so its not much help.

Maybe speak to a broker? They can have figures with you within minutes.

getmore4less

Its very easy to do the basic comparison.

Add the fees, make the monthly payments the same, see whats left after the period you want to test over.

A simple mortgage calculator can do this

This is easy for the fixed rates where the term is the same
for different mortgage length it gets a bit more complicated in that you are guessing once you include variable rates on one and a fix on the other.

if rates change part way through you can do mutliple simple calculations

eg to compare a 2year fix against a 3 year fix needs 3 calculations.

1 for the 3 years fix, one for the 2 years fix and one for the 1year followon rate of the 2 year fix.

once you have the end figure you factor in the end of deal charges.

Most comparisons can be done fairly quickly.

if you don't add the fees or make the payments the same you have extra complications because you are not doing a like for like.

paying the fees up front makes no difference to the calculations fees just mean you are borring a different amount(if you pay fees on a fee deal you borrow less on the no fee deal)

getmore4less

JimmyTheWig wrote: »

Makes total sense, Carlos.

It's what the APR is designed to do - i.e. include all charges, etc, to give you a true cost of the borrowing.
But an APR for a mortgage is about as useful as an APR for a payday loan. It gives a meaningless figure because most of the mortgage term is on the standard variable rate when in reality the chances are that you will remortgage way before the end of the term and so the SVR is way less relevant than it is made out to be.

What I do, as a rule of thumb at least, is make the fees a percentage of the balance and split that across the length of the deal.

E.g. 1
Mortgage balance £100,000. 3 year fix at 4.0%. Fees £1,500.
£1,500 / £100,000 = 1.5%.
1.5% split over 3 years is 0.5% a year.
So cost of deal is 4.5%.

E.g. 2.
Mortgage balance £50,000. 3 year fix at 4.0%. Fees £1,500.
£1,500 / £50,000 = 3.0%.
3.0% split over 3 years is 1.0% a year.
So cost of deal is 5.0%.

E.g. 3
3 year fix at 4.7%. No fees.
Cost of deal is 4.7%.

Note that the deal is the same in examples 1 and 2, but the percentage cost is different.
The (fictional) examples show that for a £100,000 mortgage the lower interest deal is best, despite the fee, but for a £50,000 mortgage the fees-free deal is best, despite the higher interest rate.

thats a little bit out over 3 years.

Interest only,
£101500 at 4.0% is equivilent to a £100k at 4.53%

20 year full term at aprox £615pm
101500 @ 4% left after 3 is £90,936.43
£100k equivilent rate is 4.55%

10year full term at aprox 1028pm
£101500 @ 4% left after 3 is £75,167.45
£100k equivilent rate is 4.6%

.

Not something you would think makes a difference, higher the payment bigger the relative interest rate, but it does and something to take into avount if people plan overpaying.

CBR600F_2

Nice wheelie. Power or clutch?

JimmyTheWig

getmore4less wrote: »

Add the fees, make the monthly payments the same, see whats left after the period you want to test over.

The problem with this is if the period you want to test over is different.

e.g.

eg to compare a 2year fix against a 3 year fix needs 3 calculations.

1 for the 3 years fix, one for the 2 years fix and one for the 1year followon rate of the 2 year fix.

While this will give you a correct result, the chances are you would remortgage after two years if you got the 2 year deal, so the follow on rate isn't necessarily that relevant.

JimmyTheWig

getmore4less wrote: »

thats a little bit out over 3 years.

Yes. That's why I called it a rule of thumb.
It's generally good enough to see whether a deal is good or not.

Interest only,
£101500 at 4.0% is equivilent to a £100k at 4.53%

I don't know what you mean here. 4.0% of £101,500 is £4,060. Which is 4.06% of £100k.

20 year full term at aprox £615pm
101500 @ 4% left after 3 is £90,936.43
£100k equivilent rate is 4.55%

10year full term at aprox 1028pm
£101500 @ 4% left after 3 is £75,167.45
£100k equivilent rate is 4.6%

I haven't followed your calculations through, but I'm surprised that the term makes a difference here.
The way I see it, you want to pay off the fee over the period of the mortgage deal to get back to the position you would have been in if you went with a fee-free deal.
I admit that in my basic rule of thumb I didn't take into account the interest on the fees.
In our £100k mortgage @ 4.0% for 3 years with £1,500 fees you'd pay approximately £90 in interest on the fees (average balance of fees £750, @ 4.0% over three years) meaning rather than splitting £1,500 over three years you should split £1,590 over three years.
Giving an effective interest rate of 4.53% rather than the 4.5% my first rule of thumb gave.

This is what I'd do for any deals that my rule of thumb showed to be contenders.

[I am well aware that I am not taking compound interest into account. We're talking peanuts at this level, so I'm happy to ignore it.]

Joe_Bloggs

In the past a good follow on rate was a way in to mortgage heaven. Especially if it was linked to the B of E base rate.This may well be true for those still in the initial period of their mortgages before SVR kicks in.
J_B.