Switching mortgage with product fee

Yuzo

My current interest rate is 4% and I have recently been offered to switch my mortgage with my current provider, the lowest rate is 2.35% with a £995 product fee.

The other 2 year fixed option is 3.15% but with no product fee.

Property value is £161000 with loan amount £119500 (27 years remaining).

Trying to figure out what the most sensible option is, I would save £50 a month in payments by paying the product fee rate.

PS. I can't pay the £995 upfront so would have to add the amount to my mortgage.

kingstreet

Assuming the outstanding balance at the end of the two years is the same;-

£119,500 x 2.35% x 2 = £5,616.40 + £995 = £6,611.50

or

£119,500 x 3.15% x 2 = £7,528.50.

So, the lower rate with fee results in a lower interest cost over the two years. However, you have to bear in mind, that extra £995 added to your loan is going to cost you interest over the whole time it remains added.