Rates v fees

ACG

Ive just read an article, and whilst it makes perfect sense some people do get blinded by the rates...

http://uk.finance.yahoo.com/news/mortgage-fee-misdirection-must-be-stopped-111206625.html

I thought some people might find it useful.

SG27

It is very difficult to find the best deal when there are so many different fees as it makes the comparison tables basically useless! You have to do the hard work yourself.

The way I did it was divide the fee by the number of months in the deal period then added it to the monthly payment to give a comparable monthly cost. This doesn't work if you add the fee to the mortgage though.

kingstreet

If we didn't have fees, the rates would be higher.

As lower rates benefit the borrowers of larger amounts and no/low fees benefit those borrowing lower amounts, the status quo has winners both ways up.

The losers are those who can't differentiate by working out the total cost over the term of the rate offer.

I think changing the market to remove cheap deals with high fees merely satisfies the "lowest common denominator" approach of providing products which can and must be understandable to those with a reading/educational age of eight.

Fudging the "advice" part of the MMR can be seen to have a future cause of casualties, if lenders aren't required to point out to direct borrowers that a higher rate may actually be better for them.

I've got a good idea. Why don't we give particular mortgage products a special label, perhaps something like, "Charges, Access, Terms" and offer that as a standard?

kingstreet

SG27 wrote: »

It is very difficult to find the best deal when there are so many different fees as it makes the comparison tables basically useless! You have to do the hard work yourself.

The way I did it was divide the fee by the number of months in the deal period then added it to the monthly payment to give a comparable monthly cost. This doesn't work if you add the fee to the mortgage though.

Calculate the interest over the rate period, add any fees, deduct any cashbacks, then make an allowance (+/-) for the difference in the capital repaid between the different deals.

gazter

ACG wrote: »

Ive just read an article, and whilst it makes perfect sense some people do get blinded by the rates...

http://uk.finance.yahoo.com/news/mortgage-fee-misdirection-must-be-stopped-111206625.html

I thought some people might find it useful.

It is quite staggering that someone wouldnt do the maths on such a significant purchase.

I can fully understand in desperation going with a lender who charges a bit more, but you are more likely to be accepted. But to not do some simple maths when working out which product is a real lapse of judgement.

Three products in front of me. My mortgage is £150,000. I can get the three year fixed rate at 2.89% £300 fees, 2.49% for £999 fees or 2.0% for £1800 fees.

You can either ask the lender what the monthly repayment on each is or just google a mortgage calculator like the bbc or money saving expert. (http://www.bbc.co.uk/homes/property/mortgagecalculator.shtml)

@2.89% = £709.07 per month X 36 months = £25,526 + £300 fee = £25,826
@2.49% = £677.67 x 36 = £24,396.12+£999 = £25,395.12
@2.00% = £640.25 x 36 = £23,049+£1800 = £24,849

It isnt hard and it isnt rocket science, add them all up and see which one gives you the highest total cost.

kingstreet

gazter wrote: »

It is quite staggering that someone wouldnt do the maths on such a significant purchase.

I can fully understand in desperation going with a lender who charges a bit more, but you are more likely to be accepted. But to not do some simple maths when working out which product is a real lapse of judgement.

Three products in front of me. My mortgage is £150,000. I can get the three year fixed rate at 2.89% £300 fees, 2.49% for £999 fees or 2.0% for £1800 fees.

You can either ask the lender what the monthly repayment on each is or just google a mortgage calculator like the bbc or money saving expert. (http://www.bbc.co.uk/homes/property/mortgagecalculator.shtml)

@2.89% = £709.07 per month X 36 months = £25,526 + £300 fee = £25,826
@2.49% = £677.67 x 36 = £24,396.12+£999 = £25,395.12
@2.00% = £640.25 x 36 = £23,049+£1800 = £24,849

It isnt hard and it isnt rocket science, add them all up and see which one gives you the highest total cost.

Check the outstanding balance at the end of the rate period and factor-in the difference. You'll be surprised at the size of some!

amnblog

kingstreet wrote: »

I've got a good idea. Why don't we give particular mortgage products a special label, perhaps something like, "Charges, Access, Terms" and offer that as a standard?

Excellent idea KS, I can't see it catching on though.

kingstreet

Here's an example, real case by the way;-

£133k remortgage over 23 years property value £167k (80%);-

Nationwide

£133k x 3.64% = £4,841.20 x 2 years = £9,682.40.

£9,682.40 + £214 fees = £9,896.40.

Outstanding balance at end of year two is £125,325.

or

Halifax

£133k x 3.79% = £5,040.70 x 2 years = £10,081.40.

£10,081.40 + £0 fees = £10,081.40.

Outstanding balance at end of year two is £125,465.

Difference in outstanding balance is £125,465 - 125,325 = £140 in Nationwide's favour, so deduct £140 from Nationwide's cost, or add £140 to Halifax cost.

Conclusion;-

End result, Nationwide beats Halifax by £10,081.40 + £140.00 - £9,896.40 = £325.00

If I could have been ar*ed to look for a big difference in rates/fees I could have made the difference look bigger by using larger or smaller mortgage amounts, but decided to use a real case as I'm a bit of a lazy tw*t when I'm not getting paid for doing my job!