Nationwide 2yr mortgage switch - cheaper to pay fee?

jaxkesa

I am coming to the end of my 2 year fix @ 1.89% and looking to switch my deal to another 2 year fix.

The only thing I can't decide is whether to:

1) Pay a £999 fee upfront and get a rate of 1.14%
2) Pay a £999 fee, add it to the loan and get a rate of 1.14%
3) Pay no fee and get a rate of 1.54%

When I work out the total cost over 2 years, based on the monthly repayments Nationwide are quoting, option 3 works out slightly cheaper.

Does that sound correct? I was always under the impression that a lower rate but a higher fee was usually the cheapest option.

amnblog

The rate is more sensitive the higher the lending.

How much do you owe?

jaxkesa

amnblog wrote: »

The rate is more sensitive the higher the lending.

How much do you owe?

£214,770. LTV is just under 60%.

amnblog

The difference in the rates is 0.4%. £40 per annum in every £10,000 outstanding.

With £214,770 outstanding 0.4% saving is worth up to £860 (depending on how quickly you are repaying the capital)

Over two years you would easily save £999 (assuming you will not have paid off a large percentage of your mortgage by 2019).

jaxkesa

OK perhaps I am looking at it incorrectly or over a 2 year period rather than over the whole term (28 years although I am regularly overpaying).

The difference in monthly payments between the 2 rates is £40.40 so over 24 payments that is £969.60.

So my thinking was I would save £969.60 in repayments with the lower rate but would have to pay a fee of £999. Therefore wouldn't I be £29.40 better off with the higher rate?

andrewf75

Will keep an eye on this thread as I'm looking for a similar switch also nationwide.
Just wondering why only a 2 year fix?

Brighty

jaxkesa wrote: »

OK perhaps I am looking at it incorrectly or over a 2 year period rather than over the whole term (28 years although I am regularly overpaying).

The difference in monthly payments between the 2 rates is £40.40 so over 24 payments that is £969.60.

So my thinking was I would save £969.60 in repayments with the lower rate but would have to pay a fee of £999. Therefore wouldn't I be £29.40 better off with the higher rate?

With the lower rate, as well as lower monthly payments, you'll also end up with a lower balance at the end of the 2 years. Put your numbers into the mse mortgage calculator and compare. Whether a low rate+fee is better than a higher no fee depends on what you owe, there'll be a break even point where if you owe more than that, low rate+fee is better and below the break even a higher rate and no fee is better. With a mortgage that size, you're probably better off with the low rate, but use to calculator and see

getmore4less

jaxkesa wrote: »

I am coming to the end of my 2 year fix @ 1.89% and looking to switch my deal to another 2 year fix.

The only thing I can't decide is whether to:

1) Pay a £999 fee upfront and get a rate of 1.14%
2) Pay a £999 fee, add it to the loan and get a rate of 1.14%
3) Pay no fee and get a rate of 1.54%

4) Pay no fee and borrow £999 less at 1.54% to compare against 2)

When I work out the total cost over 2 years, based on the monthly repayments Nationwide are quoting, option 3 works out slightly cheaper.

Does that sound correct? I was always under the impression that a lower rate but a higher fee was usually the cheapest option.

You can't just use the difference in payments as you pay off more capital with the lower rate.

Interest only which is the biggest saving you can make on the difference in interest
£999/(0.004*2) = £124875.
If within a hundred either way of that do the proper calculation.

if your mortgage is less than that you take the no fee, higher you take the fee.

mortgage is £214,770

base rough IO calc
£214,770 * 0.004 * 2 = £1,718 - £999 = £719.


looking at payments for different terms(round up to £1), add the fees to the lower rate make the payments the same(like for like cash flow) and see how much is left after 2 years for fee @ no fee then the saving with fee...
term - payment - fee - no fee - saving
I/0 £276 £214,761 £214,046 £705
30 £746 £203,313 £202,642 £671
25 £863 £200,463 £199,803 £660
20 £1041 £196,128 £195,484 £644
even down to a 3y term you are still better off
3y £6109 £72,683 £72,514 £169

as you can see overpayment/shorter term reduce the saving, so mortgages close to the break even need to consider that but yours is big enough not to worry unless you plan on paying it off in less than 3 years.

jaxkesa

Thanks for all the replies. I didn't consider that different mortgage sizes would affect which option is the better deal.

I'm certainly not going to be paying off within 3 years so will go with the lower rate, pay the fee and continue to overpay so that when the fixed deal ends, my balance is lower than it otherwise would be.