Better deal?

frivolous_fay

Assume there are two mortgages available to me with the same provider. All fees and so on are identical, except:

One has a 2 year fixed rate of 4.79%, and arrangement fee of £2k
The other has a 2 year fixed rate of 5.11% and a fee of £1k

On the basis of a £225k loan, which is better?

Sorry, my brain is buzzing and I can't trust myself to figure it out correctly!

stuzhunter

what is the term of the mortgage? Is it 25 years?

kingkano

I'm no expert, but over the 2yr period I make them to be pretty equal (the extra 1k/24 = £42 and the lower rate costs roughly £42 less over 25yrs). What they would do though is add the arrangement fee to the mortgage. Which looks appealing but means the second one costs you ALOT more over the life of the mortgage (thats assuming you can keep getting fixes at the same rate)....

stuzhunter

Assuming a 25 yr mortgage:

(1) With a 2 year fixed rate of 4.79%, and arrangement fee of £2k

Total repayments over 2 years= 24 X1287.95= £30910.80
Arrangement Fees= £2000
True cost over 2 years=£32910.8

(2) With a 2 year fixed rate of 5.11% and a fee of £1k
Total repayments over 2 years= 24 X1329.79= £31914.96
Arrangement Fees= £1000
True cost over 2 years=£32914.96

Lol there is a £4.16 difference !!!

frivolous_fay

Thanks guys, that puts things more in perspective.

I take it that over time, the effect of the extra 1k fee can only compound and leave you worse off? (Even if only slightly)

So much for the better rate for current account holders!

Mr_helpful

Are you adding the fee to the loan becauseat the end of the two years you will have a larger mortgage to remortgage with the higher fee.