Please Help - Mortgage Newbie

tantan1208

What does this mean:

The overall cost for comparison is 5.9%:.

Is this the actual interest you're paying for the mortgage or is this
the current market rate?

Many Thanks

p3gg

Hi tantan,

The overall cost for comparison means the percentage rate over the full term of the mortgage, and is based on two assumptions: (i) that you will stay with that lender for the whole term rather than shop around for a better deal, and (ii) that the lender's base rate (SVR / Standard Variable Rate) will stay the same over that period, which of course it won't, as it will move up or down roughly in parallel to the base rate of the Bank of England.

An example... Say you're applying for a mortgage over a 25-year term with a lender whose SVR is, at present, 6.25%, but they are offering you a discount deal of -1.75% for the first five years, then reverting to the SVR for the remaining term. This means -- based on the current SVR -- you pay as follows

For years 1-5 (five years): 4.50%
For years 6-25 (twenty years): 6.25%

And hey presto, using my simple arithmetic this fictional example would average out at an overall cost for comparison of 5.9% annually over the term of the mortgage.

Hope this helps a bit, and good luck!

Joe_Bloggs

This figure can mean more than it indicates. In many deals you can get a discount but this deal tails of into an SVR rate that eventually makes up a total of 25 years or so. The overall cost for comparison is often based upon a calculation based upon you sticking with a deal when it is favourable and also sticking with it when it becomes SVR or worse. You can save money by finding a new lender when you get SVR, This assumes that there are no tie in clauses after the discounted period.
J_B (The Devil is in the details.)

herbiesjp

The overall cost for comparison (or APR) also includes things such as the fees associated with the mortgage, not only the interest rate, so the higher the fees the higher the APR also.

But as has been rightly said, this assumes you will stay with the lender for the whole term of the mortgage, when in reality you will re-mortgage at various points to get better deals.

tantan1208

Many thanks for the explanation.

Best Regards to all

:j