Miscalculation somewhere...

Equaliser123

Hi

In the process of applying for a mortgage via L&C. Loan is around £278k.

Post Office is working out best according to L&C. Two (2 year fixed) products to choose from:

1.22% with £1495 fee
1.65% with no fee.

L&C recommend the 1.65% product. Their illustrations show:

1.22% - £1600 per month for 2 years. Plus £1495 fee = £39,895 (2 years)
1.65% - £1650 per month - £39,600 (2 years)

MSE's calculator has broadly the same monthly cost but shows

1.22% - £38,623 over 2 years; and
1.65% - £39,697.

My own calculations based upon the difference between the rates (0.43%) show a difference in interest of £2,400 making the 1.22% cheaper.

Wondering if L&C have got it wrong (albeit how can they) and which figures to trust.

Any help gratefully appreciated.

amnblog

L&C are regulated.


If they get it wrong you have a comeback.


If you have it wrong you won't have a comeback.


If MSE have it wrong, you won't have a comeback.

TrickyDicky101

Is your mortgage over approx 16 years?

I make the 1.22% better as you will have paid off an additional c.£1k off the capital over the two years (so you're overall debt will be smaller at the end).

EDIT: I assumed you pay the fees at commencement of the mortgage rather than adding it to the loan. It doesn't make a significant difference to the calcs though.

Equaliser123

TrickyDicky101 wrote: »

Is your mortgage over approx 16 years?

I make the 1.22% better as you will have paid off an additional c.£1k off the capital over the two years (so you're overall debt will be smaller at the end).

EDIT: I assumed you pay the fees at commencement of the mortgage rather than adding it to the loan. It doesn't make a significant difference to the calcs though.

Thanks for that. Yes, 16 years.

Equaliser123

amnblog wrote: »

L&C are regulated.


If they get it wrong you have a comeback.


If you have it wrong you won't have a comeback.


If MSE have it wrong, you won't have a comeback.

True. But I'd much rather go in fully informed with the confusion resolved.

getmore4less

Equaliser123 wrote: »

Hi

In the process of applying for a mortgage via L&C. Loan is around £278k.

Post Office is working out best according to L&C. Two (2 year fixed) products to choose from:

1.22% with £1495 fee
1.65% with no fee.

L&C recommend the 1.65% product. Their illustrations show:

1.22% - £1600 per month for 2 years. Plus £1495 fee = £39,895 (2 years)
1.65% - £1650 per month - £39,600 (2 years)

MSE's calculator has broadly the same monthly cost but shows

1.22% - £38,623 over 2 years; and
1.65% - £39,697.

My own calculations based upon the difference between the rates (0.43%) show a difference in interest of £2,400 making the 1.22% cheaper.

Wondering if L&C have got it wrong (albeit how can they) and which figures to trust.

Any help gratefully appreciated.

They have failed to account for the £50pm doing something like overpay or earn interest or look at the amount owing after 2 years.

How can this be acceptable practice?

getmore4less

paying £1650pm in two years

(Subject to chosen lender interest calculation method).

£279495 @ 1.22% £246329
£278000 @ 1.65% £247088

getmore4less

TrickyDicky101 wrote: »

EDIT: I assumed you pay the fees at commencement of the mortgage rather than adding it to the loan. It doesn't make a significant difference to the calcs though.

If you are going to pay the fees up front you can borrow less on the no fee deal.

Equaliser123

getmore4less wrote: »

They have failed to account for the £50pm doing something like overpay or earn interest or look at the amount owing after 2 years.

How can this be acceptable practice?

Sorry, can you explain this point?

getmore4less

There are two critical parts to the calculations.

The change in net debt, what you start and end with.
The cash flow(how much you pay out over the term)

You have to look at both.

The starting points are different for each loan as one has fees.
You either add the fees or borrow less(or account for the money in and investment)

You then pay out an amount each month, easier to make that the same or again you have to accound for it sitting as an investemnt somewhere

Then you end up with net debt, this is the bit that matters.

You may want to factor in other things in the choice but the key is for the same total cost which loan leaves you owing the least money.

Equaliser123

getmore4less wrote: »

There are two critical parts to the calculations.

The change in net debt, what you start and end with.
The cash flow(how much you pay out over the term)

You have to look at both.

The starting points are different for each loan as one has fees.
You either add the fees or borrow less(or account for the money in and investment)

You then pay out an amount each month, easier to make that the same or again you have to accound for it sitting as an investemnt somewhere

Then you end up with net debt, this is the bit that matters.

You may want to factor in other things in the choice but the key is for the same total cost which loan leaves you owing the least money.

Thanks. Understood. But that said, I really can't see that adding £1495 to a debt of £279k would make such a difference over just 2 years.