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Fees Vs No Fees Mortgages

ArrVee
ArrVee Posts: 3 Newbie
edited 27 July 2017 at 11:36AM in Mortgages & endowments
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
«13

Comments

  • If it is capital repayment - with no fees
    If interest only - with fees
  • 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
    amnblog Posts: 12,699 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    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.
    I am a Mortgage Broker

    You should note that this site doesn't check my status as a Mortgage Broker, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
  • getmore4less
    getmore4less Posts: 46,882 Forumite
    Part of the Furniture 10,000 Posts Name Dropper I've helped Parliament
    £158k repayment over 21y is about £768pm

    after 5 years

    £158000 @ 1.99% £126,107
    £158999 @ 1.79% £125,706
  • 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
    ArrVee Posts: 3 Newbie
    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
    getmore4less Posts: 46,882 Forumite
    Part of the Furniture 10,000 Posts Name Dropper I've helped Parliament
    edited 27 July 2017 at 1:55PM
    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
    SouthLondonUser Posts: 1,445 Forumite
    Seventh Anniversary 1,000 Posts Name Dropper Combo Breaker
    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
    SouthLondonUser Posts: 1,445 Forumite
    Seventh Anniversary 1,000 Posts Name Dropper Combo Breaker
    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
    getmore4less Posts: 46,882 Forumite
    Part of the Furniture 10,000 Posts Name Dropper I've helped Parliament
    edited 27 July 2017 at 4:13PM
    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
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