Lower interest rate with fee vs. Higher interest rate with cashback

Home2011

foxy-stoat wrote: »

Seeing as you havent told us any numbers see example:

£250,000 mortgage @ 1.79% interest, monthly payment £1034.26, total paid over the 5 years = £62,055, your mortgage balance will be £208,521 on month 61 (£500 cashback)

£250,999 mortgage @ 1.49% interest, monthly payment £1002.66, total paid over the 5 years = £60,159.60, your mortgage balance will be £207,983 on month 61 (£999 fee added to mortgage)

If you take option 1 and you made 1 overpayment of £500 in month 2 say then at month 61 your mortgage balance will be £208,104.60 but you would of paid £1895.40 more over the 5 years than option 2.

So take the lower interest rate....of course if your mortgage balance is much lower then you need to crunch the numbers.

What happens in year 10, 15 or 20 isn't relevant in comparing the 2 deals.

Just seen you have your £140,000 mortgage balance.....punch the numbers into online calculators and see what the results are. Have to say though your mortgage adviser should of already done this with you so, due to new compliance and regulation.

https://www.theguardian.com/money/loan-repayment-calculator-interest-rates

Thank you for the calculations as well as the link to the calculator, that is very helpful.
It is also reassuring to know that at least one person can see my query as valid, as I was starting to doubt my sanity:D

Home2011

foxy-stoat wrote: »

Have to say though your mortgage adviser should of already done this with you so, due to new compliance and regulation.
]

Well no, he hasn't done it. In fact he's still to provide me with key facts... wants me to decide which deal we want before he does provide any detailed info, which to me makes no sense. Therefore all the questions. I have since asked another mortgage advisor for more info, don't want to be left in the dark like that.

Retired_Mortgage_Adviser wrote: »

Sorry to go on about this, but I hate reading accounts of people accusing brokers of deliberately wrong advice for the sake of proc fee because they don't know how the profession is regulated, what amounts are being talked about or the severity of potential consequences for mis-selling or wrong advice!

PS: I've seen many wierd and wonderful things but in my many years of broking, not one client has asked me to compare products in the way that you describe!

It wasn't my intention to accuse anyone, I was just asking for clarification putting things into context, i.e. I only stated what my friend had doubts about my advisors integrity due to them been rather pushy with a particular product.
Saying that and considering all the above subsequent replies, I am now very doubtful I have been receiving much of a quality service from my advisor.
So whilst I don't doubt the profession, nor do I question it overall, the reality is that the 'severity of consequences of misselling' that you mention, can only happen if people complain. And to complaing they first need to be aware of any wrongdoings... therefore the questions on the forums etc.

Thank you for your feedback though, much appreciated.

amnblog

Your ‘financially savvy friend’, unlike your Broker is neither knowledgable, nor regulated, nor has access to the full information, and is doing you no favours by suggesting the Broker is deliberately disadvantaging you.

Fees and cashback are always a complication on overall costs as the merits of accepting or avoiding them are influenced by many factors. Sometimes the difference is so small that is comes down to simply what makes the borrower feel most comfortable.

Other times a borrower insists on the rate without the fee when it is clearly not in their best interests and we need to counsel them.

Your Broker could have picked up on your concern by noticing it and putting your mind at rest. They have the facility to generate comparison figures if your concern is mathematical.

If you just don’t feel right about one route in preference to another, they can talk it through with you and help you come to a decision.

getmore4less

if those are your deal option(check for other fees)

1.49% £999 fee
1.79% £500 cashback

£140k over 15 years 5y fix.

add the fees/cashback, make the payment the same see what's left after 5 years

1 £140,999.00 1.49% £887.44 £96,653.29
2 £139,500.00 1.79% £887.44 £96,892.47

Paying the fee about £240 better off after 5 years.

Any plans to overpay will make that smaller.
eg £1kpm payment will reduce that to £185.


if your brokers are saying different ask them to show you their calculations accounting for all the cashflows, and why they recommend the cashback option.

For that amount I would be looking at the other factors if different lenders.
Like retention deal history, rates on smaller loans(halifax is bad for that)...


For the pay the fee up front it saves you money

all it does is change the calculations to

1 £140,000.00 1.49% £881.11 £95,971.28
2 £138,501.00 1.79% £881.11 £96,197.17

Saving goes down to £226 as all you have done is overpaid by £999 up front.

Home2011

getmore4less said:

if those are your deal option(check for other fees)

1.49% £999 fee
1.79% £500 cashback

£140k over 15 years 5y fix.

add the fees/cashback, make the payment the same see what's left after 5 years

1 £140,999.00 1.49% £887.44 £96,653.29
2 £139,500.00 1.79% £887.44 £96,892.47

Paying the fee about £240 better off after 5 years.

Any plans to overpay will make that smaller.
eg £1kpm payment will reduce that to £185.


if your brokers are saying different ask them to show you their calculations accounting for all the cashflows, and why they recommend the cashback option.

Thanks for this calculation, it is helpful as a comparison to the one I have been doing.
I am not sure I fully understand what you mean by 'add the fees/cashback, make the payment the same see what's left after 5 years'...

Since the monthly payment amount would not be the same on these two different options due to the different borrowing amount and the different interest rates, do you mean make payments the same by overpaying the one with the lower monthly payment to make them equal for calculation purposes, or something else? 
Also the one with the £500 cashback, I notice you have taken that amount off the amount borrowed - is this just for the calculation purposes or do you suggest increasing the deposit amount by adding cashback, or is the mortgage amount in this case reduced by immediate overpayment of £500 (using cashback to overpay). 

I would be most grateful if you could please elaborate, and do so on the assumption that nothing is obvious to me today, even if may be to all of you    I am having one of those 'slow' days