Fixed rate calculation help

jrsga

Hello

I am looking for some help please.

I'm wanting to compare a 2YF and a 3YF deal. Bear with me.

2YF @ 1.59% £788 monthly.
3YF @ 2.19 £834 monthly

Its a £46 a month saving with the 2YF (£1104 over 2 years).

£1104/12 = £92 How does one equate that saving to year 3 of the 3 year deal? In other words what would the equivalent rate have to be if i took the first option for me to have "not lost out so to speak" ?

I hope I have made sense.

thanks

Pete

getmore4less

Comparing different length deals is a guess.

Do the fixed bit first as that is the known bit.

Add the fees and make the payment the same it is easier.

See what's left after 2 years on both deals and 3 years on the 3 year deal these are the know points.

You can then work out what rate the 2 years deal needs to be to break even after 3 years.


Put some real numbers up and I can do an example.

jrsga

thanks for replying firstly.

borrowing 162000
2yf 1.59 - fee is £219
3yf 2.19 - no fee (should add onthis product its £1000 cashback, I dont know if that complicates things)

I hope this helps.

thanks

getmore4less

jrsga wrote: »

thanks for replying firstly.

borrowing 162000
1. 2yf 1.59 - fee is £219
2. 3yf 2.19 - no fee (should add onthis product its £1000 cashback, I dont know if that complicates things)

I hope this helps.

thanks

Using a simple calculator.
http://www.whatsthecost.com/mortgage.aspx

Edit: I have ignored the cash flow issues of the fees/cash back they are noise if all done within a month
Sticking the numbers in gives a 20 year term

So we will add the fees to 1. and borrow £1k less on 2.
this makes the biggest payment £830 so go with that.

in 2 years time paying £830pm
£162219 @ 1.59% £147231
£161000 @ 2.19% £147858 (£627 more)

on the 3y in another year you owe £14969.

for £147231 to get to the same a rate of 2.63%

You have to judge can you get a rate better than 2.63%(before fees) in 2 years time.

JimLad

Are you planning on overpaying? That can make a big different with fixed rates as often they put a limit on it.

Its slowed us down being on a fix with santander who limit you to 10% a year. When your mortgage gets lower its a real hindrance.

jrsga

thanks again, really helpful.

The SVR after 2 years is 3.99% (SVR deal 2 is 4.99%) so i would revert to that after 2 years and then the payment jumps to £956? (i think)

What would you do - get another 12 months surety with the 3YF?

I know its hard to say but at the end of that 2 year deal do you often pay fees to stay with the lender on say another fixed deal with them?

my thinking is:
Deal 1 - the SVR is lower
Deal 1 - I save £1104 over 2 years

and the 64 million £ question is will i get a rate "better than 2.63%(before fees) in 2 years time" as you put it?.

getmore4less

jrsga wrote: »

thanks again, really helpful.

The SVR after 2 years is 3.99% (SVR deal 2 is 4.99%) so i would revert to that after 2 years and then the payment jumps to £956? (i think)

What would you do - get another 12 months surety with the 3YF?

I know its hard to say but at the end of that 2 year deal do you often pay fees to stay with the lender on say another fixed deal with them?

my thinking is:
Deal 1 - the SVR is lower
Deal 1 - I save £1104 over 2 years

and the 64 million £ question is will i get a rate "better than 2.63%(before fees) in 2 years time" as you put it?.

Read my post again over 2 years you save £627.
Remember deal two has a £1.2k head start over deal one.

jrsga

Hi jimlad,

yes, you can overpay up to £999 a month (which is actually less than 10% a year).

thanks

jrsga

thanks

And whats your opinion on the other questions?

getmore4less

You can research the chosen lenders current retention deals to see what fees/rates they offer.

even that is not set in stone, sometimes fees are there sometimes not.

Why are you fixing is another question to ask yourself.

Will your circumstances change, income, jobs, kids...

Will your LTV change.

to many variables for people to suggest.

The key is making sure you understand what you can work out from the data you know then factor in variables.

A_Frayed_Knot

JimLad wrote: »

Are you planning on overpaying? That can make a big different with fixed rates as often they put a limit on it.

Its slowed us down being on a fix with santander who limit you to 10% a year. When your mortgage gets lower its a real hindrance.

How long are you fixed for?

This is what I was thinking as well, but once your fixed term is finished, revert to svr for 1 month - this gives you the opportunity to overpay as much as you like without penalties, then go back into fixed deal increasing payments by as much as you can by reducing the term (years) you take the next deal out for.

I hope you can follow this and if anyone knows of any pitfalls with my plan, please let me know.