Cheapest mortgage calculations... have I gone bonkers??

jackhulk

Hello

I'm in the process of selecting my first mortgage and I'm trying to work out the cheapest mortgage in terms of least amount of interest, plus fees paid over initial 2 years fixed rate.

As per a multitude of guides I read online that advises the lowest interest rates doesn't mean it's the cheapest as you have to factor in the fees, I started to look at 'true cost' over the course of the 2 years. I found Skipton 2.20% with £81 and 1% cashback to be the 'cheapest'.

2.20% is quite a bit more than say Halifax at 1.17%, but then with Skipton I'd get £1,735 cashback/£81 fee, where as Halifax has a fee of £999 and no cashback. The true cost then for Skipton is a lot cheaper over the 2 years (£16,403 vs £17,214) and so Skipton was the easily the winner and the one I should get!

But then I got to thinking and the cheapest as in how much you pay back over two years, doesn't mean it's the cheapest in terms of how much you're charged in total. Yet many of the comparison sites, plus even mortgage brokers research results comparing mortgages concentrate mainly on initial rate and true cost.

So to try and decipher the actual cheapest/best deal, now I'm looking at...

Cumulative interest over 2 years + Fees - Lenders Cashback = Total charges.

The mortgage with the lowest total charges IS the cheapest, despite it possibly having a higher true cost. As in example above, it's the Halifax that now comes out on top with total charge of £4,859 vs £5,492, despite having a true cost of £17,214 vs £16,403. Halifax has £12,091 capital paid off vs only £10,646 for Skipton.

Isn't this the best calculation method to find the cheapest deal? Or have I completely lost the plot, which is quite possible as I've been looking at mortgages for far to long and my brains gone a bit mushy!

getmore4less

You have got it a lot closer as a lot of comparison sites do it wrong or have flaws that can give misleading results.

Using the payment is one way to get it wrong as that has 2 components interest and capital.
lower rates pay off more capital over the same period even on standard lower payments.

Also most don't take account of the cashflow,
eg. not accounting for a £1k fee @2% over 2 years will get it wrong by around £40

Then you have the difference in payment to factor in.


The simplest way is to do a like for like on cash flow.

Make the cash position at the start the same
adjust the balance of what you are borrowing
Add the fees( -ve for cash back)

Make the payments the same.
pick the higher of the contractual payments or if you plan to overpay your planned payment.

That make the cash flow the same for each choice.


See which is the lowest balance at the end of the term.

You can then adjust for things like the rate is so low you want the lowest payment as possible and will direct cash to savings at a higher rate.


Often you can do the rough stab using interest only
(rate difference * loan * years)

If there is a significant difference you don't need the more accurate calculations but if close you do as repayment changes the numbers.

getmore4less

Trying to work out your mortgage from what you have posted.

1% cash back £1,735 mortgage is £173,500

Halifax total costs £17,214 including £999 fee say £676pm
Skipton total costs £16,403 net cashback £1654 say £752pm.

rates 2.2% makes the term around 25years for the Skipton and 24y 6m for the halifax

25years gets
£173,500 1.17% £667.31
£173,500 2.20% £752.40

lets go with those rates & 25y term
putting in the net cashback £1654 and the £999 fee

amount left of the mortgage after 2 years.

1 £171,846.00 2.20% £752.40 £161,125.38
2 £174,499.00 1.17% £752.40 £160,366.92

jackhulk

Many thanks, good to see I'm on the right track... although your examples have completely lost me (maybe need coffee to kick in!)

Doesn't your calculations though ultimate give same result as mine, all be it over 25 years vs my 2 years? I want to stick to the 2 years for an exact figure of charges for that period as I will remortgage after that. Also if the fees are included in the loan over 25 years, this skews the costs for the first 2 years, so for the easy of use in example I'm paying fees upfront.

Here's my results comparing the two. I find this the easiest way to calculator... but is it correct? Please note the Halifax fees are actually £1,360 when you included valuation fee and solicitors fees.

Cumulative interest over 2 years + Fees - Lenders Cashback = Total charges

getmore4less

forgot to add the line that the amount at the end is how much is left after the 2y fix period.
Bold is the lowest.

With your new fees. and the interest and total cost at the end.


1 £171,846.00 2.20% £752.40 £161,125.38 £7,336.92 £5,682.92
2 £174,860.00 1.17% £752.40 £160,736.46 £3,934.01 £5,294.01

jackhulk

So our calculations are pretty much the same ain't they.... so my spreadsheets is ok?

The only slight difference in calculations I see is the Skipton total cost as you've used a net figure for the cashback, where as I have used the whole amount. Why net figure and how do you arrive at £1654 please?

getmore4less

£1,735 - £81 = £1654

You need to account for the difference in cash flow.

At the start there is a net difference of £1360+£1654=£3014

The effect is you borrow different amounts at the start.