Is lower rate better on large loan?

chelseablue

Now I'm even more confused :rotfl:

So, I need to work out how much we would owe at the end of the 2 years and the one that takes the most off the balance is the one to go for?

getmore4less

chelseablue wrote: »

Now I'm even more confused :rotfl:

So, I need to work out how much we would owe at the end of the 2 years and the one that takes the most off the balance is the one to go for?

A lower rate pays of the capital quicker than a higher rate so you have to account for that.

You need to compare the starting point, the end point and the cashflow

For a given amount of your real money which one reduces the debt the most.

easiest way to do this is make the starting point the same with zero cash difference by adding the fees, or if you pay them a smaller debt on the no/lower fee deal.
(some say paying the fees up front is better, for this comparison the difference is very small and reduces the savings as you are just borrowing less*)

Then you have the monthly payment, make them the same and you don't have to account for the difference in payments, if planning to overpay use that amount.

Then see how much is left at the end, lower is better
.........

That the straight financial difference on the deals you then have the other factors

You want a lower monthly payment.
The rates are so low you should be saving any surplus.
If different lenders there may be other fees and different follow on rates to consider
.........

* pay the fees or not
add the fees
£220,000 @ 1.59% £760pm £208,583
£221,499 @ 1.09% £760pm £207,947
£636
pay the fees
£218,501 @ 1.59% £760pm £207,036
£220,000 @ 1.09% £760pm £206,415
£621

chelseablue

Thank you very much, we're planning to overpay by at least £500 a month from the summer.


Was just looking at First Direct who are offering a 5 year fix at 1.74% booking fee is £725
As they allow unlimited overpayments, we can then pay off as much as possible in 5 years and look at moving house.


Never though of a 5 year fix before as I thought rates would not be worth considering, was pleasantly surprised. Also saves the hassle of switching every 2 years