Tracker offer worse than fixed? And fees vs no fees.

drsquirrel

If someone could double check this here - I am used to seeing trackers being a better % (at the start at least) than the fixed package for the same period.

Currently the offer from Nationwide stands at 2yrs fixed 1.49% or 2yrs variable 1.79% (base+1.69).

Am I understanding this wrong? As I don't see variable working out better unless base goes to minus numbers, and that's if they would even drop below their number if base rate was below 0% ?

So I went to compare the 2 year fixed, up front fee and no fee. Their pages make it seem cheaper to pay a fee but I think it would be better to go no-fee and just pay the fee equivalent to lower the balance day one (no compound on that amount too).

In their own comparisons, they add the fees onto how much you will pay, but the fee doesn't come off the balance so its not a fair comparison?

If I take 999 off the current balance at the bottom on the no-fee column, the calculation drops a lot more.

This seems so obviously wrong to me, that I feel that I'm completely missing something myself?

K_S

drsquirrel said:

If someone could double check this here - I am used to seeing trackers being a better % (at the start at least) than the fixed package for the same period.

Currently the offer from Nationwide stands at 2yrs fixed 1.49% or 2yrs variable 1.79% (base+1.69).

@drsquirrel Comparing the Nationwide fixed and tracker product, the tracker is bound to be a bit more expensive as it offers a lot more flexibility than the fixed product. You can pay off any amount ERC-free, switch products to another Nationwide product at any time, remortgage away to another lender at any time, etc. The trade-off is that you pay a bit of premium in the interest rate.

getmore4less

The fee is cheaper. 

Look at the difference in payment and the amount owing with the fee added. 
£640-£397~=£243 cheaper. 

To do it properly you need to make the payment the same.

Any mortgage over £150k and 6y full term is cheaper with the fee unless planing big overpayments. 

drsquirrel

Where did you get the 640/397 from?

I do plan to make overpayments, of almost double (which I do now, and is still under the 10% of original loan luckily) though I was indeed looking at the values they gave.

The way I was looking at it was the balance after 2 years are 152,027 and ,564 so £537 difference - but the balance would be 999 lower to start with for the higher one so would then make it cheaper(and more so with compound savings on the 999).

getmore4less

I said,  it's for the column with fee added and no fee. 
the differences in payments
The difference in the amount owing. 

getmore4less

Would need to work it out for a payment around £1200

drsquirrel

I'm aware of that - I was trying to calculate them as is before adding on the extra complication of overpayments. But as I'm doing so badly right now I have thrown these 2 into the MSE calculator...

Overpayment (end of year 2)
140,905 - 139,685 = 1220 - 999 = £221

No overpayment (end of year 2)
152,348 − 151,811 = 537 - 999 = -£462
With the overpayment(to make up £1100) the fee looks better - but without it still looks worse as I seemed to think before?

1.09% /w fee(999)
Year 0    £162,754    £162,754
Year 1    £157,313    £151,282
Year 2    £151,811    £139,685

1.49% /wo fee(0)
Year 0    £162,754    £162,754
Year 1    £157,590    £151,911

Year 2    £152,348    £140,905

Edit: I just made the same mistake again on the non overpayment because there are 2 different monthly payments.

The compare 2 mortgages calculator helps with this. Although I can't figure out how to compare it with an overpayment too.

getmore4less

Most calculators comparisons are not good,  the MSE one has a lot of errors in some of its comparisons and can be misleading.

best avoided.

paying the fee upfront makes a small difference to the calculations so unless very close you don't need to do that one.
It's just another overpayment you have the money or you don't

we can ignore term as it is the payment that matters.

bigger the payment the smaller saving from paying the fee.

Like for like cash flow, same cash starting point and same payment see what's left

using the same 2 payments £620(1.49%)  with overpayment £1200)
(edit I missed you are using 1100  makes a tiny difference)
add fee £620pm  
£163754 1.09% £620pm £152,324.90  (-£255)
£162754 1.49% £620pm £152,579.54
pay fee £620pm
£162754 1.09% £620pm £151,302.87 (-£236)
£161754 1.49% £620pm £151,549.31
add fee £1200pm
£163754 1.09% £1200pm £138,258.52 (-£200)
£162754 1.49% £1200pm £138,458.95
pay fee £1200pm
£162754 1.09% £1200pm £137,236.49 (-£192)
£161754 1.49% £1200pm £137,428.72

Over 2 years the difference is not that much

the breakeven payment  is over £3300pm

As I said any mortgage over £150k over 6 years full term the fee option is better.

The NO fee comes into play around £125k mortgage size.
(can have a proper look later)
................................................................................................
Not what you asked but worth a look
 
It will be worth running the 1.24% 5y fix option against multiple 2year deals as you will have another fee and rates might go up the slightly higher cost in the first 2 years will be recovered.
on the 1200pm payment the 0.15% extra  will cost around £460 for first 2 years( less in the second 2) so quite close but a saving if rates don't drop.

 unless you need to stick with the 2 years for other reasons that looks like a decent option.

drsquirrel

getmore4less said:

................................................................................................
Not what you asked but worth a look
 
It will be worth running the 1.24% 5y fix option against multiple 2year deals as you will have another fee and rates might go up the slightly higher cost in the first 2 years will be recovered.
on the 1200pm payment the 0.15% extra  will cost around £460 for first 2 years( less in the second 2) so quite close but a saving if rates don't drop.

 unless you need to stick with the 2 years for other reasons that looks like a decent option.

Thanks for this part - I had started looking at that since their 5y rate is lower than the 3y and it seems to make sense. Even if rates go down its not going to be a massive difference I feel - so I am looking at this at the moment. There is something to be said about not having to decide every 2 years too...

Thanks for the help/checks.

K_S said:

@drsquirrel Comparing the Nationwide fixed and tracker product, the tracker is bound to be a bit more expensive as it offers a lot more flexibility than the fixed product. You can pay off any amount ERC-free, switch products to another Nationwide product at any time, remortgage away to another lender at any time, etc. The trade-off is that you pay a bit of premium in the interest rate.

Thanks - I had noticed this after and its one reason I went variable before, any overpayment. I was mistakenly made to believe that it was 10% of the annual payment not 10% of the original loan, so this isn't a problem for me now. Last time though (x2) the variable deal I got was cheaper than the fixed, first time I've seen it higher.

getmore4less

Quick update have my spreadsheet handy.
for 1.09% £999 fee 1.49% over 2 years the break even point

Full term	mortgage size needed
5	£154,965.82
10	£138,501.50
15	£133,764.13
20	£131,517.37
25	£130,207.48
30	£129,350.62
IO	£126,297.79