Fees Vs No Fees Mortgages

ArrVee

Apologies, this might a very basic calculation and we got so muddled up looking at various calculators. Which of the following option to choose? Please help.
Outstanding 158000
Term 21yrs left
Capital Repayment
Option 1: 1.79% for 5yrs and Fees £999
Option 2: 1.99% for 5yrs and Fees £0.
Thank you

Mortgage_Adviser

If it is capital repayment - with no fees
If interest only - with fees

ArrVee

Thank you. It is capital repayment. We were looking to pay the fees in advance. MSE compare fixed mortgage tool shows the option 1 with fees is cheaper?

amnblog

0.2% on £158,000 is £316.

£316 X 5 years = £1,580

Unless you are paying off the £158,000 very rapidly, the maths speak for themselves.

getmore4less

£158k repayment over 21y is about £768pm

after 5 years

£158000 @ 1.99% £126,107
£158999 @ 1.79% £125,706

Wake_up_call

Mortgage_Adviser wrote: »

If it is capital repayment - with no fees
If interest only - with fees

Incorrect.

There are two factors to consider. 1) Difference between payments 2) capital reduction over five years.

The first deal is the most cost effective on both interest only and repayment.

ArrVee

Thank you. We will make some additional payments but will not able to pay off full 158k in the next 5 years. As suggested in the MSE tool below, Option 1 with Fess of £999 & 1.79% is the better option?


Option 1: Your monthly 'fixed' payment is £752 with a cost over the fixed term of £45,139
(Fixed Interest: 1.79% | Fees: £999 |Deal length: 5yrs | standard rate: 4.5%)


Option 2: Your monthly 'fixed' payment is £768 with a cost over the fixed term of £46,064
(Fixed Interest: 1.99% | Fees: £0 | Deal length: 5yrs | Standard rate: 4.5%)

getmore4less

ArrVee wrote: »

Thank you. We will make some additional payments but will not able to pay off full 158k in the next 5 years.

the overpayments reduce the saving over 5 years
interest only
£158000 @ 1.99% £262pm £158,000
£158999 @ 1.79% £262pm £157,441
saving £559

standard 21y ish term
£158000 @ 1.99% £768pm £126,107
£158999 @ 1.79% £768pm £125,706
saving £401

large overpayment
£158000 @ 1.99% £2000pm £48,452
£158999 @ 1.79% £2000pm £48,438

saving £14

ArrVee wrote: »

As suggested in the MSE tool below, Option 1 with Fess of £999 & 1.79% is the better option?

Option 1: Your monthly 'fixed' payment is £752 with a cost over the fixed term of £45,139
(Fixed Interest: 1.79% | Fees: £999 |Deal length: 5yrs | standard rate: 4.5%)


Option 2: Your monthly 'fixed' payment is £768 with a cost over the fixed term of £46,064
(Fixed Interest: 1.99% | Fees: £0 | Deal length: 5yrs | Standard rate: 4.5%)

there is a good example of why you should not use MSE calculators they get the wrong answers.

that suggest either a £925 saving or some variant as it is not clear what total costs really means.

Seems to take no account of amount you have left at the end of 5 years quite an important part of the calculations.

SouthLondonUser

If you are not familiar with spreadsheets, you should download one of the mortgage templates available online, I believe even on this forum.
Assuming you pay the fee upfront, and don't make any overpayment, after 5 years you will have paid this much in interest and fees:
1.79%, with £999 upfront fee: 13,735
1.99% with no upfront fee: 14,188

So paying the fee upfront saves you £ 453 over the course of 5 years. It is much less than the 1,580 mentioned in another post because you do repay capital in the meanwhile, so the balance on which you pay interest goes down month after month.

So, yes, the first option is cheaper, but not by much. If you'd rather have an extra grand of savings for a rainy day, it may make sense to go with the product with no upfront fee. If you have more than enough savings, go for the cheaper one.

SouthLondonUser

PS To clarify, getmore4less has done the calculations assuming that you pay 768 per month in both cases, i.e. that, in the 1.79% case, you effectively overpay by £15 every month. He also assumed the fee gets added to the loan. I prefer not to make comparisons on this basis, he prefers not to make them on mine, but the final conclusion is the same: the 1.79% mortgage is cheaper, but not by much.

Also, I disagree that the amount you have left off at the end of the period is such an important aspect, because principal is, in a way, money you are paying to yourself: paying £ 1,000 less of total instalments (capital + principal) but ending up with a £1,000 higher balance doesn't really mean much. This is one of the reasons why I think it's more meaningful to compare the cost of interest and fees.

Note I have no interest whatsoever in getting into a debate on which approach is more sensible: I am merely trying to explain the differences to the OP so he can draw his own conclusions.

getmore4less

the alternative to not adding the fees is to make a one off overpayment on the no fee deal(ie. borrow less by the fee amount).

If you don't you are borrowing different amounts which makes any calculation fairly meaningless.

Same with difference in payments you need to account for the interest on those either from reducing the debt or bay saving them