arrangement fees vs no arrangement fees

Doglover88

Im looking around to remortgage in early 2008 when my 5 yr fixed term comes to an end, and looking at most companies they offer 2 mtg's for most deals, one with arrangement fee's etc and one without. The one without rate is slightly higher, im guessing the fees are sort of incorporated into it somehow?

Is there a rough rule, for working out wether its financially better to go for the cheaper rate and pay the initial fees, or the slightly higher rate without the fees?
Say, on a £100k mortgage

peggydoodaa

I believe that the arrangement fee just gets added onto your mortgage anyway, so although you pay a lower monthly rate you really have to do the math to see if the saving is worth it in the long run.
Our IFA went through all the figures and between us we decided that no arrangement fee, with the higher rate per month saved us more money than the arrangement fee option in the long term for our £110k mortgage

sdooley

whether to pay the fee is based on only 4 factors:

the size of the fee
the difference between the two rates
the duration of the fix
the amount you are borrowing

100,000 makes the maths easier

for every 0.01% rate saving, you save 10 pounds per year of the fix.

if this adds up to more than the fee, you are saving money, but only if you pay the fee out of your own pocket - don't fall for the temptation of adding it onto the mortgage.

Why not add a fee onto the mortgage?

assuming average rates and you have 20 years to run on the mortgage, you'll be paying interest, compounded, on the additional amount for the duration. As this is additional borrowing, you are effectively increasing the last slice of capital to be repaid - you will pay probably double the fee over the term. Think of the fee like the interest on a mortgage, if you fell behind in payments for even a couple of months, you'd always be behind.

jill2002

An easy way of doing it is find out what the monthly cost is for each of the deals for your mortgage then minus one from the other - thats how much you will save each month. Now times that by the number of months you have the deal for e.g. 5 years = 60 months. If this is higher than the fee then it is worth taking the cheaper rate and higher fee.

However, remember that by adding the fee for the cheaper % deal, the mortgage balance will be higher at the end of the term.

Example:-

£100,000 Interest Only on 5.79% with £1999 fee = £482.59 per month

£100,000 Interest Only on 6.49% with no fee = £540.84 per month

Therefore saving £58.25 per month x 60months = £3495 saving.

In this example it is worth paying £1999 fee in order to save £3495.

Hope this helps.

sarkin

I dont like adding fees to a mortgage as others have said because of compound interest. Have you spoken to a mortgage broker yet, if so post the quotes and let everyone on here pick over the bones to find you the best mortgage rate. Are you looking for a variable rate mortgage or fixed rate.