Additional borrowing - cheaper without product fee??

d0nkeyk0ng

So we're looking at doing a kitchen extension, bathroom renovation, and relay patio. Total likely to run to £50k. We plan to move in a couple of years but the house needs to be brought up to modern standard.

Loan - 6.9% APR so total payment over 5 years is around £59k ie £9k in interest payments. Monthly payment of £983.

Remortgage would mean at least an additional £7k over 20 years but means monthly payment of £1200 instead of £1000. ERC = £1500. Product fee £999. So total extra paid is £9500 provided interest rates stay at 1.54% (which they probably won't).

"Borrowing more" - nationwide offer with and without product fee.

5 year fixed with fee is 1.54% (product fee £999) - total £51,981.60 + fee = £52980. Monthly repayment of £883.

5 year fixed without fee is 1.79% - total = £52,308.00 - a difference of £672.

I'd have thought it would be cheaper to pay the fee for a lower interest rate. What am I missing?

What would be the best way forward bearing in mind we will sell the house and would make £150k profit (based on local house prices) and already factoring in the £50k cost?

getmore4less

Do Nationwide offer a 2 year product or tracker  on additional borrowing?

What deal do you currently have with nationwide?


The fee/no fee breakeven depends on payment.
£50k nearly always better with the no fee.

If moving in 2 year why look at 5year products.

Planning to port?

Nationwide offer a product switch and additional borrowing with single fee.

user1977

d0nkeyk0ng said:

I'd have thought it would be cheaper to pay the fee for a lower interest rate. What am I missing?

That you're borrowing a relatively small amount, which makes the (fixed) product fee more expensive than the interest you're saving.

d0nkeyk0ng

getmore4less said:

Do Nationwide offer a 2 year product or tracker  on additional borrowing?
If moving in 2 year why look at 5year products.
What deal do you currently have with nationwide?

Yes. The 5 year quotes was for comparison purposes. Currently two months into 3-year fixed deal at 1.73%.

getmore4less said:

Planning to port?
Nationwide offer a product switch and additional borrowing with single fee.

Not sure about porting - I think it depends on the financial situation at the time.

getmore4less

Why did you not take the extra borrowing when you did the product switch 2 months ago?
Why take a 3year product if planning to move in 2?

Comparisons need to be done over the same timescales and payments not the full terms. 

for the 1.54% £999 fee 1.79%  the breakeven mortgage size over 5 years depends on payment/full term

5	£159,187.65
10	£107,610.59
15	£97,103.65
20	£92,590.93
25	£90,087.48
30	£88,499.82
IO	£83,191.82

If you planned to borrow at those rates over 5 years it would look like this at 4y11m with one payment to go.

amount	rate	payment	owing
£50,999.00	1.54%	£883.67	£882.54
£50,000.00	1.79%	£883.67	£138.97

~£740 difference

d0nkeyk0ng

getmore4less said:

Why did you not take the extra borrowing when you did the product switch 2 months ago?
Why take a 3year product if planning to move in 2?

Situational. The 3 year fixed deal started in 2019. Last year, we considered doing some basic redecoration and selling up in 2021 or 2022. SWMBO was never keen on renovating the kitchen or doing extension work prior to this. There was other stuff happening in the background but in short, we got an estate agent to visit in January this year. Estate agent had a look around and gave us a valuation but said the kitchen would put off buyers. It's about 10 years old and small. Most houses in the area have already extended the kitchen out and modernised it so we would be at a disadvantage.

getmore4less

Currently two months into 3-year fixed deal at 1.73%.
 The 3 year fixed deal started in 2019. 

Did you mean 2years into

I am not sure I would be bothering with the massive disruption to only move.

The price would reflect the need for work and the buyers get to do it the way they want which may attract more buyers than whatever you put in.

how many of these modernised ones are for sale is there competition to be worrying about?

d0nkeyk0ng

getmore4less said:

Currently two months into 3-year fixed deal at 1.73%.
 The 3 year fixed deal started in 2019. 

Did you mean 2years into

I am not sure I would be bothering with the massive disruption to only move.

The price would reflect the need for work and the buyers get to do it the way they want which may attract more buyers than whatever you put in.

how many of these modernised ones are for sale is there competition to be worrying about?

Sort of - the mortgage deal started in Feb 2019. Houses are going quickly. But when looking at a house that needs to be done up vs one that's already done up, there's about £80k difference in price (looking at sold prices). So even if we spend £50k, we should get some return. The other advantage is we decide to stay, we will get full use out of the extension. Property prices locally mean we may get priced out of the area. The cost of a 3-bed house now costs what a 4 or 5-bed would cost 5 years ago.

getmore4less

Anything else you could do to it to make you want to stay more.