remortgage charges v interest rate

vickyreed

I am looking at remortgage and wanted to know what was more beneficial on a 2 year fixed rate: no charges and an interest rate of 1.86 or £699 charges and interest rate of 1.37. thanks

davidmcn

It'll depend on how much you're borrowing - you'll need to do the arithmetic. A fixed fee is going to be more significant for smaller loans.

getmore4less

Depend on the size of the mortgage and the term.

For 1.89% and 1.37% with £699 fee over 2 years.

interest only you need a mortgage bigger than £699/2*( 0.0189-0.0137) = £67,211
That is approx because it does not take account of the cashflow of the £699 where the borrowings are different or the difference in payments which can save or earn some interest.

A repayment mortgage needs a bigger mortgage to take account of more cashflow and a reducing amount of borrowing.
30y £69,850
25y £70,300
20y £71,000

thriftylass

vickyreed wrote: »

I am looking at remortgage and wanted to know what was more beneficial on a 2 year fixed rate: no charges and an interest rate of 1.86 or £699 charges and interest rate of 1.37. thanks

Calculate 24x monthly payments @1.86% rate = x

Calculate 24x monthly payments @1.37% rate PLUS £699 = y

See which one, x or y, is bigger to see if it costs you more over those 2 years.

getmore4less

thriftylass wrote: »

Calculate 24x monthly payments @1.86% rate = x

Calculate 24x monthly payments @1.37% rate PLUS £699 = y

See which one, x or y, is bigger to see if it costs you more over those 2 years.

That gets the wrong answers because it does not take account of the change in capital.

thriftylass

getmore4less wrote: »

That gets the wrong answers because it does not take account of the change in capital.

That's true but that's what I use to get a ball park figure to see if it's worth paying the fee with the lower %. Am I off by much

Just found this calculator where you can compare both options in parallel
https://www.thisismoney.co.uk/money/mortgageshome/article-1633400/Mortgage-calculator-Compare-true-cost-rates-fees.html

getmore4less

thriftylass wrote: »

That's true but that's what I use to get a ball park figure to see if it's worth paying the fee with the lower %. Am I off by much

Just found this calculator where you can compare both options in parallel
https://www.thisismoney.co.uk/money/mortgageshome/article-1633400/Mortgage-calculator-Compare-true-cost-rates-fees.html

How much do you think you are off?

edit.
an example using the 2y rates & fee above.

£70,300 over 25years

2 year numbers

amount. .rate....payment....interest...+fee........24..........+fee
£70,300 1.86% £294.22 £2,576.65 £2,576.65 £7,061.28 £7,061.28
£70,300 1.37% £276.88 £1,863.74 £2,562.74 £6,645.12 £7,344.12

On the simple calculation
interest + fees fee wins by £14
payments no fee wins by £283

but that does not take account of the cash flow of the £699 at the beginning if you pay the fee you can take that off the loan with no fee or you can add the fee

add the fee as this keeps the cash position the same at the start.
£70,999 1.37% £279.63 £1,882.27 £2,581.27 £6,711.12 £7,410.12

interest + fees no fee wins by £5
payments no fee wins by £349

But then we have the difference in payment that could be pay interest easier to account for that at the mortgage rate so make the payments the same

£70,300 1.86% £294.22 £2,576.65 £2,576.65 £7,061.28 £7,061.28
£70,999 1.37% £294.22 £1,877.64 £2,576.64 £7,061.28 £7,760.28

Using the costs(interest + fees) and making the cash flow the same for both there is no difference after 2 years.

Using the payments gives a misleading answer by enough to be out of pocket by quite a bit.

The basic interest+fees gets close, add/remove the fees gets closer probably close enough for most cases as this was contrived to be on the boundary where as that is likely quite rare.

the interest only (70300 * 2* ( 0.0189-0.0137) gets £731 against the £699 fee a bit on the high side needing firther checks. if that was less than £699 no point you can't recover the fee.

thriftylass

Getmore4less, thank you. I will definitely keep that in mind when we remortgage next year. Thanks for explaining that well.

vickyreed

great thanks so the loan is for £50,000 over 17 years. I really struggle with maths so appreciate any advice

amnblog

The difference in the two rates is 1.89-1.37=0.52%

To make it easy we can call it half a percent (0.5)

On a £50,000 balance 1% is £500 so half a percent is £250.

The lower rate saves you around £250 a year interest so you won’t recoup your £699 fee over two years.

The higher rate no fee product wins here.