2 or 5 year fix with 60% ltv

ConfusedofYorkshire

SouthLondonUser wrote: »

Are there upfront fees? I assume so; if yes, how much are they? Don't underestimate the impact of paying these fees every 4 or 5 instead of every 2 years. For very large mortgages, these fees can be a rounding error, but for smaller balances they add up quite significantly.
As an example, the Yorkshire building society has a 2-year fix at 1.16% (much lower than your 1.59%). However, it comes with a hefty £ 1,495 upfront fee. With a balance of, say £ 200k, over 2 years you'll pay £ 5,965 between interest and upfront fee. This is the same you'd pay with a 1.54% rate and no upfront fee.

No these are all without fees.

The ones with fees are slightly less but working it out, not better deals.

1.19% for a 2 year- £25 a month difference, so £600 over the term, but £999 fee
1.89% for a 5 year- £13 monthly difference. £780 over 5 year term. £999 fee.

getmore4less

ConfusedofYorkshire wrote: »

No these are all without fees.

The ones with fees are slightly less but working it out, not better deals.

1.19% for a 2 year- £25 a month difference, so £600 over the term, but £999 fee
1.89% for a 5 year- £13 monthly difference. £780 over 5 year term. £999 fee.

you can't just use the difference in payment as you pay more capital off on the lower rate.

if you do the calculations properly you are better of paying the fee

£138,000 22years at around 1.6% is £620pm
£138,000 22years at around 1.2% is £595pm
add fee
£138,999 22years at around 1.2% is £599pm


after 2 years
add fee and pay the same
£138,000 @ 1.59% £620pm £127,347
£138,999 @ 1.19% £620pm £127,294

Fee is £53 better

or
pay fee up front and pay the lower rate £25pm
£138,000 @ 1.19% £595pm £126,878
save £600 net £126,278
but then the no fee can use the £1k to reduce borrowing
£137,001 @ 1.59% £620pm £126,315

Fee is £37 better

or add the fee pay the lower amount £21pm
£138,999 @ 1.19% £599pm £127,804
less the 21*24=£504 £127,300


Fee is £30 better.

Which ever way you do it better of paying the fee.

getmore4less

and the 5y 2.09% 22y is around £653pm

£138,000 @ 2.09% £653pm £111,925
£138,999 @ 1.89% £653pm £111,707

I hope it is not your broker telling you the fee free is better

SouthLondonUser

@getmore4less , I'm not sure I'm following.

A proper comparison of the cost should be done comparing interest and other fees, not capital repayments, because capital repayments are money that you are paying yourself, in a way: if you pay £ 500 more of principal, you have £ 500 more equity in your property and are £ 500 "richer" because you have more equity but £ 500 "poorer" because you no longer have that cash available.

The OP's situation is: 22 years remaining, 60% LTV, £ 138k balance.

1.59% for 2 years, with no fees: £ 4,227 of interest paid over 2 years
1.19% for 2 years, with £ 999 fee: £ 4,157 between interest and fee, assuming the fee is paid upfront and not added to the balance

If the OP knows his/her way around a spreadsheet, he/she can do the same comparison between the 5-year mortgages

getmore4less

The capital paid off is the ONLY critical bit

If I have two loans that start at the same amount and I throw the same amount at them from my pocket, the one that leaves me with the lowest debt is the best.

The fees and interest are the bits that just use up money and don't matter who gets what it is sunk cost and I don't get to see it

What I owe at the end is the only think that matters to me.

SouthLondonUser

getmore4less wrote: »

The capital paid off is the ONLY critical bit

No, it is most certainly not.

getmore4less wrote: »

If I have two loans that start at the same amount and I throw the same amount at them from my pocket, the one that leaves me with the lowest debt is the best.

IF the monthly instalments are the same, then the loan which leaves you with the lowest debt is best, yes; but, guess what?, that is also the loan which charges the least interest between the two, as per my comparison.

However, this is a moot point, because the OP was not asking about a situation where the monthly instalments are the same!

getmore4less wrote: »

The fees and interest are the bits that just use up money and don't matter who gets what it is sunk cost and I don't get to see it

What I owe at the end is the only think that matters to me.

And how much interest you were charged to get there is irrelevant?

getmore4less

SouthLondonUser wrote: »

And how much interest you were charged to get there is irrelevant?

Of course it is,

If the same cash from my pocket gets me to a lower debt it does not really matter how it got there.

The add up the costs gets close.

It is important to match the timing of the cash flow when there is interest payments as if you don't it gets the wrong answers.

if you throw £999 at the fee you need to take that off the no fee or stick it in savings and account for that

This makes the starting points different £138,000 & £137,001

This results in a fee+interest that looks like it is £70 better when in reality it is less as the interest on the no fee with £999 less debt is closer to £4196 making the saving £40.

In many cases it does not matter the numbers are clear one way or another using approximations not a few £ like this one.

The great thing about the make the start the same, put in the same cash at the same time and see whats left gives a one stop answer

what's left.

if you want to move onto the can I invest it better than the mortgage or what's the cost of keeping it to spend you can do that.

SouthLondonUser

getmore4less wrote: »

Of course it is,

If the same cash from my pocket gets me to a lower debt it does not really matter how it got there.

Precisely: the IF is the whole point: as you rightly point out, your calculation makes sense only if you are comparing two scenarios where your cash outgoings are the same: same amounts and same timing. In the real world, it's never like this, so this method ends up comparing something real vs something entirely fictional.

True, most mortgages allow you small overpayments without incurring penalties, so you can calculate mortgage 1 vs mortgage 2 + "enough overpayments every single month so the cash outgoings are the same as in mortgage 1". However, think of what this means for a second: do you really want to do this in real life? Do you really want to remember every month to overpay just enough pounds so that your comparison vs another mortgage makes sense? Of course everything is subjective, but I know I don't. And, if you don't, as you rightly point out:

getmore4less wrote: »

It is important to match the timing of the cash flow when there is interest payments as if you don't it gets the wrong answers.

It's really simple: interest and fees are costs, while capital repayments are not. To compare the costs of two mortgages over a given period of time, you need to compare the total costs (interests + fees) incurred. @OP: this is very easy to do in a spreadsheet; there are lots of templates on the internet, but if you want I'd be happy to help. Also note most such spreadsheets are compatible with OpenOffice, which is free, so you don't need to buy a Microsoft licence.

getmore4less

SouthLondonUser wrote: »

It's really simple: interest and fees are costs, while capital repayments are not. To compare the costs of two mortgages over a given period of time, you need to compare the total costs (interests + fees) incurred. @OP: this is very easy to do in a spreadsheet; there are lots of templates on the internet, but if you want I'd be happy to help. Also note most such spreadsheets are compatible with OpenOffice, which is free, so you don't need to buy a Microsoft licence.

If you are happy to ignore the effects of the capital particularly as the start when you are effectively borrowing different amounts that's up to you.

You need to account for the interest either off the mortgage or in savings as all capital is not equal as you prefer to think.

marathonic

SouthLondonUser wrote: »

However, think of what this means for a second: do you really want to do this in real life? Do you really want to remember every month to overpay just enough pounds so that your comparison vs another mortgage makes sense?

Is this not what a standing order is for?