Two Potential Mortgages, Need to Decide!

TheGame21

We are currently considering two potential mortgages and just wondered what people thought of these and how could I calculate the two offers and see which is the best one. Both are for 80% LTV

• HSBC, fixed at 3.89% for 5 years then to 3.94% SVR, product fee of £599 however reduced to £399 if you take an advance account with them which is £12.50 a month, so doing this for a year then cancelling saves £45. Overall comparison is 4.1% APR

• Halifax, fixed at 4.39% for 5 years then to 3.99% SVR, product fee of £995. However they also pay the stamp duty which would be £2,400. Overall comparison is 4.4% APR

(This one is also available fee free, fixed at 4.59% for 5 years then to 3.99%)

I’m at a bit of a loss how to calculate one against the other with the fixed periods involved, is anyone able to help and make a suggestion with regard to which one would be cheaper?

starbarboy

Hi there

Both lenders should be able to quote you what your monthly payment will be prior to application. If you multiple both by the fixed term, which in your case is 5 years and then add on any fees you will be able to compare the 2 products over the fixed period at least. Although the SVR after is useful to know, it is not guaranteed to stay the same and you may well want to rearrange a further fixed period deal at this stage anyway.

With regards to the discount for opening up the "advance account" with HSBC, it is only really going to save you a significant amount if you were interested in paying for a bank account and will make use of any "benefits" it may offer.

Hope this helps

Stephen

marshmallowkisses

This tool can be useful too:

http://www.halifax-intermediaries.co.uk/tools_and_calculators/mortgage_repayment_calculator/default.aspx

TheGame21

Halifax also have a 2 year fixed at 3.24% then onto SVR of 3.99%. This has no fee and the stamp duty will be paid however I did want something fixed for 5 years as you know what you will be paying for longer however the prospect of stamp duty of £2,400 being paid for this has interested me. What are people’s thoughts on this and the ups and downs of a 2 year fix rather than 5 years?

hamster2013

stamp duty of £2,400.00 means that the property you are buying is worth around £240k.
at 80% LTV, means that you have a deposit of £48k.

therefore, you are borrowing £192k.

HSBC: 3.89% fixed for 5 years (mortgage over 25years) = £1001/month
The application fee is £399 - (dont take into account the advance account fee as that includes other benefits which will save you elsewhere, for example international travel insurance, worth around £100, or breakdown cover worth around £30-£60...etc)

You will have to pay the stamp duty of £2400
total outgoing to HSBC after 5 years = £62859
total outstanding mortgage after 5 years around £167,370.00

Halifax: 4.39% fixed for 5 years (mortgage over 25years) = £1055/month
The application fee is £995
they pay your stamp duty of £2400

total outgoing to Halifax after 5 years = £64295
total outstanding mortgage after 5 years around £168,800.00

so if you want 5 year fixed, it is pretty obvious which version is better....
if you go with HSBC, you will be £2866 better off (£1430 in mortgage balance reduction and £1436 in payments)

On a separate note, i don't believe that interest rates will go up higher in the next 2 years, let alone 5.... what tracker rate is being offered to you by HSBC?

JimmyTheWig

I agree with hamster.
Don't just look at what you'll be repaying each month - you need to consider what your mortgage balance will be at the end of the deal.

When comparing mortgages, I just look at how much interest will be paid, rather than the total monthly repayment.
There is a 0.5% difference in interest rate (4.39%-3.89%). On a mortgage balance of £192,000 that makes a £960 difference a year.
Over 5 years that gives a difference of £4,800 (*).
This is double the amount you would save with the stamp duty offer, so you'd be better off with the HSBC one. [Plus the HSBC deal is even better as the fees are lower.]

(*) Obviously the balance will be less than £192,000 after the first year and so the interest difference will be less than this. But in the early years the balance won't reduce by much and so it is a reasonable approximation.

However, I have heard that HSBC cherry-pick their customers. Have you spoken to a broker to get an idea of whether you'd be accepted for this or not?

JimmyTheWig

TheGame21 wrote: »

Halifax also have a 2 year fixed at 3.24% then onto SVR of 3.99%. This has no fee and the stamp duty will be paid however I did want something fixed for 5 years as you know what you will be paying for longer however the prospect of stamp duty of £2,400 being paid for this has interested me. What are people’s thoughts on this and the ups and downs of a 2 year fix rather than 5 years?

Personally I would always look to avoid 2 year fixed rates. What's the point in knowing your rate won't go up in the next two years? If you can't afford an increase now, chances are you won't be able to afford an increase in 2 years time.
With a 5 year fix at least you know that by then (a) house prices should have gone up, (b) your income should have gone up, at least with inflation and (c) your mortgage balance will have reduced significantly. If rates rise in 5 years time you should be in a position to deal with it.

But saying that, this does sound like a very good deal.
Stamp duty paid for a two year tie-in is like having a 0.5% reduction in the interest rate. Plus there are no fees.
So if you could calculate an "APR" over the length of the fix this would be 2.74%.
That's a stonking rate for 80% LTV!


How long are you taking the mortgage over? 25 years? Would you be able to afford it if you took it over a shorter term than that?
How stable are your jobs?
Are you likely to be getting decent pay rises in the next two years?
Is one of you likely to be stopping work to have children in the next two years?

Basically, a two year fix is a bit of a gamble. But it sounds like, in this instance, a gamble that might be worth taking.
No-one knows what interest rates will be like in two years time. The question becomes whether you could afford a significant increase in two years time. If so, it is probably worth a gamble. If not you may be safer going for the 5 year fix.

TheGame21

Many thanks for your responses. I ruled out 2 year fixes however this one appealed because of the stamp duty. We were looking at 20 to 25 years and thinking about it, we are planning to have kids, so our costs will increase therefore a big jump after the 2 year period will be a problem. Plus I'm not sure remortgage rates will be as good as when you first take out a mortgage.

We have not gone to a broker as I must admit being new to the process I wouldn't know where to start therefore I have done the research myself. We had a meeting with HSBC Advisor today and he was going to let us have the decision of the approval in principle later today or now probably tomorrow as I haven't received anything yet.

Hamster, many thanks for your information however can you let me know how you arrived at the calculations? I haven't checked tracker rates as I wanted something fixed for 5 years so we know what we will be paying and rates will rise a little in 5 years I think.

JimmyTheWig

TheGame21 wrote: »

we are planning to have kids, so our costs will increase therefore a big jump after the 2 year period will be a problem.

In which case you may well decide to go for the 5 year fix for safety, even though it will probably cost you more overall.

Plus I'm not sure remortgage rates will be as good as when you first take out a mortgage.

There is no reason for remortgage rates to be any worse than first mortgage rates. The problem would be if rates are higher in general in two or five years time.

We have not gone to a broker as I must admit being new to the process I wouldn't know where to start therefore I have done the research myself.

Perfectly reasonable if you know what you are doing. Sounds like you do.

We had a meeting with HSBC Advisor today and he was going to let us have the decision of the approval in principle

That's all sounding good, then. Let us know if the AIP fails and people can suggest next steps.

Hamster, many thanks for your information however can you let me know how you arrived at the calculations?

I don't know where they got their information from, but if it were me I would have used
http://www.moneysavingexpert.com/mortgages/mortgage-rate-calculator

TheGame21

We are currently looking at another one as well at the moment. 3.29% fixed for 5 years but rising to 5.69% SVR after that. Obviously we would need to remortgage after 5 years however the monthly payments will be lower than the HSBC one. But its weighing the SVR and the risk that we might not be able to remortgage in the future.