Going to see Charcol

payless

Annual interest.  If I'm not making overpayment, does it make much difference?

if no over payments and on interest only - no difference.
If on a repayment mtg- say 18 yrs thenn 4.64% annual calc, is higher than 4.8% daily!

Still a competitive product - low cost swap ( not free - as you say Abbey wants paying!) but better to be aware of the downsides as well as the ups

Closing fee - Looks quite high.  I take it this is only if I move mortgages.  I thought Abbey were high, £175 i think.

Seems to be an upward   trend - but £295 is certainly at high end of the market ( some are only £0-  £50 currently )

Mortgageman

If on a repayment mtg- say 18 yrs thenn 4.64% annual calc, is higher than 4.8% daily!

This is something that I've been thinking about a bit lately (apologies Nickynoo for hijacking your thread somewhat here) but on an annual interest scheme you erode the capital quicker, so the difference in cost over time is actual considerable smaller than people have been led to believe.

I remain to be convinced by this (I haven't had time to investigate it thoroughly) but would welcome others thoughts (particularly Payless) on its validity

payless

Yes sorry I did these figures recently, and yes a degree of the difference is recovered by the fact that some of the extra is repaid off capital- will do again and repost

Mortgageman

No need to apologise - I am genuinely interested -

I've had a quick look at the maths and it seems to work, (100k mortgage over 25 years at 5% only difference of £8 in total over 2 years), but there is often a big difference between theory and reality.

It's just one of those things that you kind of accept "Daily interest is cheaper than annual interest" and I'm not so sure it isn't just another bit of smart marketing from someone.

payless

Just played around with some figures
( hindered by a power cut!)

say £80K repay mtg at 4.64%
on annual the monthly payments over 2 yr would be £177.12 total more than if it was based on daily , but the capital repaid would be £51 more.

If a daily rate of 4.72% was used this would give an equal balance ( still £95 lower payments in the 2 yrs , but £95 less capital repaid - when compared than a 4.64% annual rate.)

These figures will alter based on term ( used 18 yrs - as Nicky menationed with existing 7 yrs- although thats just assumptions)

So the calculations in this exmaple implies
monthly cost is roughly .16% higher using annual rather than daily- only really 0.08% higher when taking captial repaid into account.

( this is not financial advice- just me number crunching)

Mortgageman

Interesting.

It is driven by rate and term (rather than loan size), and can basically be expressed as:

The less time that you have left on your mortgage (that's total term, not scheme length) the more benifical it is to get a daily interest product.  (as an example, using Payless's numbers above, but changing term to 25 years, difference is only 0.04%)

and

The higher the interest rate the more benifical it is to get a daily interest product. (as an example, using Payless's numbers above, but changing rate to 9%, difference is 0.095%)

payless

If you base it the full term - as on a repayment mortgage the fully capital will always be repaid - there is of course no benefit for quicker capital reduction on annual basis, so the daily interest saving is the full amount.

more examples - based on no product changes
Using a 10 yr term on a 10 yr fixed
6.39% daily is cheaper than 5.99% annual calc

or on a 25 yr term (SVR)
6.86 daily is cheaper ( month to month) than 6.74% annual

Proving that daily is better , OK in short term around half of the saving can be balanced against the extra capital repaid on annual basis , but as the mortgages continues this "redeeming feature" is eaten back away.

Mortgageman

Yeah, absolutely - sorry, that's a more succinct way of putting point one in my preceding message - basically you just shift the repayment curve.

Proving that daily is better

it is, I think, pretty similar to the offset argument "Of course it is better - but you have to decide whether the cost is worth it"

payless

Agreed - as I said earlier

BUT depending on your ciurcumstances it may well be that the competitive rate / fees structure outweighs some/all of these points anyway

so I would say - if you have a long time left on a repayment mortgage-, daily rate is still best option - unless you can get a much better rate by accepting annual- but best not to stay on an annual deal for to long, or go annual rate if mortgage term is short.

Nickynoo1

Ok,

I would really like to go for this deal but I have a small problem. I work on a ship out of Portsmouth for P&O ferries. Would a new lender even consider my application at the moment?

A worried Nickynoo :-[