Remortgage costs

greg85

As my fixed term is coming to an end in April I'm planning on remortgaging with Nationwide. I looked at their 2 year fixed rate products and they currently offer the following:

Mortgage amount £118,000
Term: 25 years
Ltv: 67.05%

Product 1

1.39% with £999 fee
£465.85 p/m + £999 fee to be paid upfront

Product 2

1.79% with no fee
£488.17 p/m


When I had used mortgage calculators it showed that the cheapest option over 2 years would be product 1 with the £999 fee added to the mortgage so effectively I would be borrowing £118,999 instead of £118,000 at 1.39%.

Total cost for that over 2 years would be £11,275.17 instead of £11,716.13 with product 2. Surprisingly the worst option in this scenario would be taking product 1 and paying £999 fee upfront as that would come up to £12,179.42 over 2 years.

Is my logic correct here thinking that adding the fee to mortgage is more beneficial than paying it upfront or am I missing something?

[Deleted User]

I'm not an adviser but I think the second is better, but only by a few hundred. Because of the size of that fee and the relatively low balance.

Re: adding fee to the loan. I'd say it's always beneficial to pay it upfront, unless you believe you can earn more than that in savings. Sometimes I know people add it to the loan for simplicity at application stage / reduced upfront costs - but then overpay soon after completion to minimise the effect of the fee.

If you leave the fee added, as you say you're increasing the debt - and so ultimately the total cost.

I like L&Cs calculator for comparing rates - https://www.landc.co.uk/calculators/compare-two-rates/

greg85

Thanks for reply, according to "this is money calculator" the first option with lower rate and fee added to mortgage is cheaper:shocked:

If the rate stayed the same over 25 years:

Option 1

1.39%
£119,000 mortgage amount (£999 fee included)

Total mortgage charge: 140,939.56
Total interest charge £21,939.56
Total monthly payment £469.80
Cost over 2 years: £11,275.17

Option 2

1.79%
£118,000 mortgage amount (no fee)

Total mortgage charge: 146,451.68
Total interest charge £28,451.68
Total monthly payment £488.17
Cost over 2 years: £11,716.13

So over 2 years option 1 with lower rate mortgage (with £999 fee added to it) is £440.96 cheaper than option 2 with higher rate and no fee. It's also substantially cheaper over the full life of mortgage (over 5k cheaper) so option 1 seems like the better option?

[Deleted User]

Life of the mortgage is almost irrelevant as you are highly unlikely to stay with the same provider. Even if you did, you wouldn't be on the same rate - you'd jump to SVR and then need to change product.

Most accurate way IMO would be to look at "total cost over initial term". I.e. the two year fix.

Factor in all fees - valuation, application, product and any other fees that may apply, then work out the total cost.

No idea what this "this is money" thing is, but it seems odd. My initial thought was that fee free would be cheaper as your balance is relatively low.

Look at the MSE calculator: https://www.moneysavingexpert.com/mortgages/compare-mortgage-rates/

Ignore the fee for the moment.

1.39% vs. 1.79% over 2 years

1.39% = £466pm / £11,182 total cost

1.79% = £488pm / £11,710 total cost

So two looks expensive on that, but you need to ADD £999 to option 1 (regardless of whether you pay it up front, or add it to the loan. If you add it to the loan, add more like £1,025).

Option 1 (£11,182 + £999) is more than the flat £11,710 on the no fee product.

I also really need to add - have you spoken to a broker about ALL deals available, not just those at Nationwide? Other lenders may (or may not) have even better products. Even if they don't, you'll receive professional advise as to which product to pick.

greg85

It's not allowing me to paste the link to the calculator but the one I used is similar to the one you mentioned in your first post. It's called "This is Money - Compare the true mortgage costs"

Yeah, I spoke to a broker and that's the two deals that he recommended at this stage.

Big thanks for your help and all the pointers.

getmore4less

Paying fee up front or not makes a tiny difference to the comparison and can be ignored initially.

Rate diffence is 0.4% that's around a £125k mortgage to break even over 2years with a £999 fee on interest only.

Yours lower so can't recover the fee.

The correct way is add the fee make the payment the same and see what's left after 2 years.