Fees Vs No Fees Mortgages

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people can decide if they think factoring in the fee and the difference in pay is significant or not based on the numbers using the costing approach.

Where are we at the start for this one....

£158k 21y 1.79%(£999 fee) or 1.99% fee £0 5y fixes, £999 in the bank.

costs over 5 years

basic calc, pay the fee and ignore the money in the bank on the no fee.

£158,000.00 1.79% £752.65 interest £12,735.86 Total cost £13,734.86
£158,000.00 1.99% £767.60 interest £14,188.25 Total Cost £14,188.25
difference £453.39


Use the money in the bank to reduce the debt so the starting point is the same.

£158,000.00 1.79% £752.65 interest £12,735.86 Total cost £13,734.86
£157,001.00 1.99% £762.75 interest £14,098.54 Total Cost £14,098.54
difference £363.68


the effect of the difference in payments on cost is lower but some may still consider that significant enough.
using the lower borrowing as the base as that reflects the true comparison against paying the fee up front.

£158,000.00 1.79% £762.75 interest £12,708.41 Total cost £13,707.41
£157,001.00 1.99% £762.75 interest £14,098.54 Total Cost £14,098.54
Difference £391.13

For these rates/fees and a smaller mortgage this difference can get significant.

The test for do you need to check more carefully is the interest on the fee at the higher rate for the fixed term, in this case £999 @ 2% over 5 years(£100)...as long as the base check come out with a saving a decent margin over that you get the binary answer you want you will save or not paying the fee.

The base case anything £108,700 and over is better paying the fee the true savings don't kick in till £116,700.

another method often uses to get a rough idea is just do the best case savings which is interest only, difference in rate 0.2% over 5 years £999 fee that comes up with the break even as £999/(0.002*5) == £99,900

mortgage below that no fee, above on repayment need a better check as breakeven needs to be higher how high depends on the payment.