Struggling to get my head round the mortage comparison tool

jennibee70

Hi, my deal is up for renewal this month, and I'm comparing 2 year deals. When I did the maths myself, I multiplied the monthly cost by 24 months, added the fee or £0, then divided by 2 years to get a cost per year. Doing that, I'm pretty certain the 2 year at 2.25% interest with no fee (monthly amount £358.47), works out better value than 2 years at 1.53%, £995 fee, monthly payment of £340.24. However, I entered the same details into the "compare two mortgages" tool, and it gave the opposite result. Does the calculator assume that I'll be on the same deal for 15 years, and only pay the £995 once? Or is it including interest on the £995? Where am I going wrong?

Secondly, if I've got 4 different options with different rate and lengths, do I assume it will pay off the same amount of capital, whichever deal I choose? Is the cost per year the best way to judge? Thanks for any advice you can give.

Thrugelmir

How much are you proposing to borrow? 
Will you be adding the product fee to the mortgage? 

amnblog

We have no way to judge what 'the calcuator' is doing, or if it is even accurate, but the figures here suggest your balance is under £60,000.
If that is the case, £995 is over 1.67% of your loan so you need to save half that a year to benefit from paying the fee.
1.67/2 = 0.835%
The difference in the rates is 0.72% so the fee rate is no good to you.

jennibee70

You are correct, I would be borrowing £57K, and I would be adding the £995 to the mortgage.
I did discover the other "compare fixed mortgages" calculator, which helped clear things up a bit for me. It isn't including the £995 in the costs for the 2 years, but shows that the deal with no fee would cost more over the two years, but also clear more of my capital, which is ulitmately my goal.

getmore4less

You can't use just the payment you need to look at the amount owing at the end of the fix. 

Lower rate pay off more capital even with a lower payment. 

Thrugelmir

While your outgoings maybe lower on the 1.53% rate. At the end of the 2 year term you'll owe a larger amount of capital due the adding of the product fee. Which effectively wipes out any benefit. 

If you intend to pay the product fee upfront. You'd be better off paying down the mortgage and borrowing less. 
Your mortgage balance is at a level where paying a product fee is at best marginal and unlikely to be of benefit. 

getmore4less

Adding fees or not makes a small difference to a proper comparison. 

Base here is  £60k borrowing with  different rate of 0.72% over 2 years can only save £864 on interest only basis.
You can't recover the fee on repayment with a smaller starting amount. 

ACG

Typically on mortgages below around £120k, it is cheaper to go for a deal with no fee. 
Although it ultimately depends on how long you are tied in for, how much the fee is the rates on offer. As you are some way below that figure and looking at a 2 year deal, I would be inclined to say the no fee deal will be the cheaper of the 2.