FTB - Fee Saver?

bb88

Long time lurker, first time poster..and first time buyer! This may just be my ignorance but i've done a bit of research and haven't came up with an answer quite yet.

The plan is to go and see a mortgage adviser a little bit closer to the time (have one lined up, but it's too soon yet when the handover date for the new build isn't until November as any full mortgage offers will expire), but still have questions now.

I'm getting a bit confused over paying for mortgage product fees in return for a lower interest rate, vs paying no fee for a higher rate?

Here's the example i've got from Halifax on a 2 year fixed term (£215200 purchase, £158000 mortgage):
£623.07/mo - 1.39% - £495 product fee
vs
£637.79/mo - 1.59% - £0 product fee

Now... thats £14.72/mo of a difference, not significant really. For 24 months, taking the no-fee option, thats paying £353.28 extra working out less than the £495 fee? I've looked at a few lenders and it seems to be a common theme but surely that's not very 'MSE' to pay the extra for a lower rate if longer term it actually costs more?

The numbers do add up fine for a 5 year fixed term and the £495 fee actually gives a net saving of around £400 but as it's 2 year deals I'm probably going to go with, at least initially, the numbers don't add up.

This is probably just my ignorance here but I assume when you come to renew onto a new product/fixed term similar product fees would apply again to jump onto a new product so long term there is no benefit?

Maybe I'm understanding things wrong... can anyone advise?

Many thanks!

ACG

It all depends on the figures, typically it is better for those with larger mortgages to pay a fee. But you are right to not get caught out by the rate - which is what a lot of people do.

It is a case of looking at the overall deal, so when the time comes make sure your broker finds the best deal for your circumstances, some people want the cheapest monthly payments even if it does cost more in fees. Others want the cheapest deal, others prefer to pay a little more for longer term stability and so on. It is all about what you want from your Mortgage.

I took a lower rate with a fee recently on a £160k mortgage, because the cash back that came with it made it cheaper than the deal with no fee or cashback.

glosoli

Part of the mortgage advisers job is to calculate the most cost effective product for you, taking all these variables into consideration, so I wouldn't get too caught up on it.

getmore4less

You have not checked what you owe after 2 years.

The lower rate pays off more of the debt.

Addthe fees make the payments the same and see what's left.

The max the lower rate can save is on interest only.

0.2% on £158k is £316py. Repayment it is lower so you need to do the proper calculation, not just look at the difference in payment.