In general, how do you decide whether to pay a product fee or go for a fee saver?

IAMIAM

The majority are £999 for both 2 year and 5 year fixes, which I think for a 2 year, is expensive....but then a 5 year deal is a lonnnng time

I am finding, the fee of 999 whether paid up front or added on, still works out as the cheaper option in terms of total cost over two years. Yet should I be looking at what the balance will be at in two years time....or is that irrelevant based on prices increases, overpayments and product changes due to increase LTV

Seashell517

What are the rates on the fee paying and non-fee paying fixes?

https://www.totallymoney.com/mortgages/the-hidden-cost-of-fee-free-mortgages/

Definite

IAMIAM said:

The majority are £999 for both 2 year and 5 year fixes, which I think for a 2 year, is expensive....but then a 5 year deal is a lonnnng time

I am finding, the fee of 999 whether paid up front or added on, still works out as the cheaper option in terms of total cost over two years. Yet should I be looking at what the balance will be at in two years time....or is that irrelevant based on prices increases, overpayments and product changes due to increase LTV

We found the fee was our best option. We added it to our mortgage as advised, but will pay the equivalent into our mortgage as an overpayment a few days after we are set up. 

MFWannabe

For me the interest rate was lower on the fee product and it worked out slightly cheaper 
I went with a 5 year fix because it was a really good rate and I wanted to lock in and not have to change again in 2 years time; which could be potentially higher rates by then 

grumiofoundation

Whichever is cheaper. 

K_S

IAMIAM said:

The majority are £999 for both 2 year and 5 year fixes, which I think for a 2 year, is expensive....but then a 5 year deal is a lonnnng time

I am finding, the fee of 999 whether paid up front or added on, still works out as the cheaper option in terms of total cost over two years. Yet should I be looking at what the balance will be at in two years time....or is that irrelevant based on prices increases, overpayments and product changes due to increase LTV

@IAMIAM Like the MSE mortgage finder does, you look at it on a total cost basis (monthly repayments, add fees, remove cashback)  over the period of the fix.

Generally speaking, the lower the loan size, the more likely it is that the no-fee option is cheaper on a total cost basis when compared to its with-fee counterpart.

getmore4less

K_S said:

IAMIAM said:

The majority are £999 for both 2 year and 5 year fixes, which I think for a 2 year, is expensive....but then a 5 year deal is a lonnnng time

I am finding, the fee of 999 whether paid up front or added on, still works out as the cheaper option in terms of total cost over two years. Yet should I be looking at what the balance will be at in two years time....or is that irrelevant based on prices increases, overpayments and product changes due to increase LTV

@IAMIAM Like the MSE mortgage finder does, you look at it on a total cost basis (monthly repayments, add fees, remove cashback)  over the period of the fix.

Generally speaking, the lower the loan size, the more likely it is that the no-fee option is cheaper on a total cost basis when compared to its with-fee counterpart.

That gives the wrong answer.

You have to look at the amount owing at the end of the fix and the difference in payments as well.

A lower rate pays off more capital even with a lower payment.
You need to also use planned payments for the comparison as overpayments change the answer.

For many it will be fairly clear cut one way or another but when you get close to the break even point it can be out by quite a lot.

Simple example £100k  1.25% £1k fee 1.5% no fee, 5(60months)year fix,  20y full term
1.25% 
£471.13  *  60 = £28,268   add fee  £29.268  amount owing £77,291

add fees at start
£475.85 * 60 = £28,551 amount owing £78,064

1.5% 
£482.55 * 60 = £28,593  amount owing £77,737

Just taking into account the payment and fee 1.5% is (£29,268 - £28,593)  1.5% £675 better
if you then take account of the amount left (£77,291-£77,737)  now down to £229 better 
Then take account of the difference in payment £685  now the 1.5% is £456 worse off


Adding the fee at the beginning to make it a bit better comparison.
(£28,551-£28,593)  1.5%  £42  worse  off 
if you then take account of the amount left  (£78,064-£77,737) 1.5% is £285 better
Then take account of the difference in payment £402  15%  1.5% is £117 worse off

Then if you do a proper like for like with cash flow the same, fee up front an payment the same.

amount	rate	payment	owing
£101,000.00	1.25%	£482.55	£77,649.84
£100,000.00	1.50%	£482.55	£77,736.74

Paying the fee leaves you £87  better off.

some like to pay the fee rather than add it and that makes small difference
.

amount	rate	payment	owing
£100,001.00	1.25%	£477.72	£76,884.75
£99,001.00	1.50%	£477.72	£76,960.15

fee now saves £76

up the payment to  say 708 pm to use up some of your 10% overpayment limit.

amount	rate	payment	owing
£101,000.00	1.25%	£708.00	£63,698.38
£100,000.00	1.50%	£708.00	£63,698.38

break even.

The break even mortgage for 20y term 0.25% differential and £1k fee is around  £92,257  depending on actual payment

dimbo61

I use " whatsthecost " and work out how much we will pay over the period of the fix including the Fee or No Fee and see how much we owe at the end of the 2/5 years by clicking on the " Details " link and going down the table of months for 24 or 60 months.
Not always easy to work out so post details if you want so others can help.

K_S

getmore4less said:

K_S said:

IAMIAM said:

The majority are £999 for both 2 year and 5 year fixes, which I think for a 2 year, is expensive....but then a 5 year deal is a lonnnng time

I am finding, the fee of 999 whether paid up front or added on, still works out as the cheaper option in terms of total cost over two years. Yet should I be looking at what the balance will be at in two years time....or is that irrelevant based on prices increases, overpayments and product changes due to increase LTV

@IAMIAM Like the MSE mortgage finder does, you look at it on a total cost basis (monthly repayments, add fees, remove cashback)  over the period of the fix.

Generally speaking, the lower the loan size, the more likely it is that the no-fee option is cheaper on a total cost basis when compared to its with-fee counterpart.

That gives the wrong answer.

You have to look at the amount owing at the end of the fix and the difference in payments as well.

A lower rate pays off more capital even with a lower payment.
You need to also use planned payments for the comparison as overpayments change the answer.

For many it will be fairly clear cut one way or another but when you get close to the break even point it can be out by quite a lot.

Simple example £100k  1.25% £1k fee 1.5% no fee, 5(60months)year fix,  20y full term
1.25% 
£471.13  *  60 = £28,268   add fee  £29.268  amount owing £77,291

add fees at start
£475.85 * 60 = £28,551 amount owing £78,064

1.5% 
£482.55 * 60 = £28,593  amount owing £77,737

Just taking into account the payment and fee 1.5% is (£29,268 - £28,593)  1.5% £675 better
if you then take account of the amount left (£77,291-£77,737)  now down to £229 better 
Then take account of the difference in payment £685  now the 1.5% is £456 worse off


Adding the fee at the beginning to make it a bit better comparison.
(£28,551-£28,593)  1.5%  £42  worse  off 
if you then take account of the amount left  (£78,064-£77,737) 1.5% is £285 better
Then take account of the difference in payment £402  15%  1.5% is £117 worse off

Then if you do a proper like for like with cash flow the same, fee up front an payment the same.

amount	rate	payment	owing
£101,000.00	1.25%	£482.55	£77,649.84
£100,000.00	1.50%	£482.55	£77,736.74

Paying the fee leaves you £87  better off.

some like to pay the fee rather than add it and that makes small difference
.

amount	rate	payment	owing
£100,001.00	1.25%	£477.72	£76,884.75
£99,001.00	1.50%	£477.72	£76,960.15

fee now saves £76

up the payment to  say 708 pm to use up some of your 10% overpayment limit.

amount	rate	payment	owing
£101,000.00	1.25%	£708.00	£63,698.38
£100,000.00	1.50%	£708.00	£63,698.38

break even.

The break even mortgage for 20y term 0.25% differential and £1k fee is around  £92,257  depending on actual payment

@getmore4less Thanks for the detailed explanation. It's good to know there may be small differences if you go to that level of detail. Our sourcing tool does the math and it calculates total cost in the similar way to what the MSE tool does, so that's good enough for broking purposes and I've never had (or heard of) a complaint on this account.

With regard to overpayments, I ask the client if they intend to make significant overpayments and take that into account but not to the level of a monthly cash flow.

getmore4less

if broker tools are using the payment net fee method they will be getting it wrong for some customers.

How can the regulators be happy with that?

Customers put the trust in the broker so probably never check if they have been advised incorrectly.

I accept there may be other factors that make a less than optimum choice better for some borrowers 

Given the calculations are fairly trivial once you understand the problem why not just do the comparison properly along side the standard wrong one?

K_S

getmore4less said:

if broker tools are using the payment net fee method they will be getting it wrong for some customers.
How can the regulators be happy with that?
Customers put the trust in the broker so probably never check if they have been advised incorrectly.
I accept there may be other factors that make a less than optimum choice better for some borrowers 
Given the calculations are fairly trivial once you understand the problem why not just do the comparison properly along side the standard wrong one?

@getmore4less In all seriousness, you should write to the FCA. It could well be as serious an issue as you think it is. Maybe even reference the MSE tool, which I'm sure is used by many to pick a product and go to the lender direct. 

I'd love to "do it properly" but then I wouldn't be able to meet the compliance requirements set by the network which requires me to support my recommendation with the evidence of research documents output from the 3rd party sourcing tool that I (and hundreds of other brokers up and down the country) use.