Comparing mortgage offers with product fee

deefadog

Hi, is there an easy way to work out a product with no product fee with a high rate to that of one with a few but lower rate?

Basically i can take a 1.89% (with my current provider)- No fee

or

Take a product with HSBC 0.99 - with £1500 fee.

This is for the next 2 years only

Mortgage 114000 over 25 years.


This is how i have worked it out but i am not sure if it's correct:

Current
114000 / 25 year = 4560 / 12 months = ££380 + 1.89% = £387.182



New

114000 + £1500 = 115500 / 25 year = 4620 / 12 months = £385 + 0.99% = £388.81

HappyMJ

I just use the calculator.

First one is a monthly payment of £477 on £114,000 over 25 years.

Second one is a monthly payment of £429 on £114,000 over 25 years. The fee of £1,500 is then divided by 24 months and £62.50 (excluding interest) is added to the £429 to make £491.50 per month for 2 years.

At the end of the 2 year fix you should owe around about the same.

So first one is cheaper. £11,450 compared to £11,798.

deefadog

Thanks You HappyMJ - very helpful!

Do you have the calculation you used please so i can use it on other products? Maths is not my strong point.

lfc321

Are they both for 2 year fixes?
If so, just calculate what you’ll pay over those 2 years since you’ll be free to move your mortgage after that anyway, and you don’t know what will happen to the rates with those providers after the fix ends. Only the first 24 months are relevant to the calculation:

Current provider (1.89%) = £477 x 24 = £11448
HSBC (0.99%) = (£429 x 24) + £1500 = £11796

As HappyMJ says, your current provider is the better deal by £348 over the two years.

amnblog

None of the above complication is necessary.

The difference in the rate is 0.9% (1.89%-0.99%)

0.9% of £110,000 is £990 per year for two years = £1980

£1,980 extra interest to save a £1,500 fee does not work mathematically.

[Yes- you can argue that since you are repaying some capital over the two years the 0.9% X £110,000 figure is not totally accurate - in the scheme of things it makes not difference to the conclusion]