Re-mortgage advice

adonis10

We are coming to the end of our 5 year fixed term mortgage and now looking to decide whether to go tracker or fixed term and for how long. Current rate is 2.14% and mortgage of £130k. With rates as low as they are I suspect that a tracker is probably not a good idea so another 5 year fixed term feels about right at this stage, however I've never had to remortgage before so not had to consider it in the detail I need to now (probably overthinking).

The best I can see with current provider (HSBC) is 1.49% or 1.19% with a £999 fee (the latter works out more expensive so not considering it). LTV is 35%, 20 years to go.

Open to advice and thoughts from you good people.

adonis10

   Anyone?

getmore4less

adonis10 said:

We are coming to the end of our 5 year fixed term mortgage and now looking to decide whether to go tracker or fixed term and for how long. Current rate is 2.14% and mortgage of £130k. With rates as low as they are I suspect that a tracker is probably not a good idea so another 5 year fixed term feels about right at this stage, however I've never had to remortgage before so not had to consider it in the detail I need to now (probably overthinking).

The best I can see with current provider (HSBC) is 1.49% or 1.19% with a £999 fee (the latter works out more expensive so not considering it). LTV is 35%, 20 years to go.

Open to advice and thoughts from you good people.

How did you work that out because it is wrong?

The breakeven mortgage for those rates and fee over 5 years on a 20y full term is £76,700  you are well over that.

the basic max saving is interest only £130,000 * 0.003 * 5 = £1,950 
that reduced by repayment mortgage but there is still a big surplus so worth checking properly using real numbers 
add the fee make the payment the same see what's left

amount	rate	payment	owing	interest
£130,999.00	1.19%	£626.71	£100,301.79	£6,905.47
£130,000.00	1.49%	£626.71	£101,034.73	£8,637.41

Savings using the fee option after 5 years ~£700

if you plan to overpay breakeven is at a £2213pm unlikely the no fee option at 1.49% features

adonis10

getmore4less said:

adonis10 said:

We are coming to the end of our 5 year fixed term mortgage and now looking to decide whether to go tracker or fixed term and for how long. Current rate is 2.14% and mortgage of £130k. With rates as low as they are I suspect that a tracker is probably not a good idea so another 5 year fixed term feels about right at this stage, however I've never had to remortgage before so not had to consider it in the detail I need to now (probably overthinking).

The best I can see with current provider (HSBC) is 1.49% or 1.19% with a £999 fee (the latter works out more expensive so not considering it). LTV is 35%, 20 years to go.

Open to advice and thoughts from you good people.

How did you work that out because it is wrong?

The breakeven mortgage for those rates and fee over 5 years on a 20y full term is £76,700  you are well over that.

the basic max saving is interest only £130,000 * 0.003 * 5 = £1,950 
that reduced by repayment mortgage but there is still a big surplus so worth checking properly using real numbers 
add the fee make the payment the same see what's left

amount	rate	payment	owing	interest
£130,999.00	1.19%	£626.71	£100,301.79	£6,905.47
£130,000.00	1.49%	£626.71	£101,034.73	£8,637.41

Savings using the fee option after 5 years ~£700

if you plan to overpay breakeven is at a £2213pm unlikely the no fee option at 1.49% features

Makes sense. Sorry, I was just referring to total repayment over 5 years but didn't take into account the additional interest.

Can you talk through your calculations, please? Essentially, you're suggesting that the fee option is cheaper if I overpay to the level of the fee free option?

getmore4less

You must have done something wrong because the total payments are still less with the fee.

rate	fees	payment	add fees
1.19%	£999.00	£608.95	£613.63
1.49%	£0.00	£626.71	£626.71

£608.95 * 60 + £999 =  £37,535.80  payments + fee

£613.63 * 60 = £36,817.57   payments with the fee added(but leaves a bit more debt see below ***)

£628.71 * 60 = £37,602.68    payment for the no fee higher than the other 2 ways

 if you pay the fee up front then you should compare borrowing less on the no fee 

£608.95 * 60 = £36,537

£621.90 * 60 = £37,314

no fee higher payments 

no fee is more total payments whichever way you do it.
none of that takes into account how much you owe at the end of 5 years
even with the lower payment you have a smaller debt at the end.

amount	rate	payment	owing
£130,000.00	1.19%	£608.95	£100,339.24
£130,000.00	1.49%	£626.71	£101,034.73

*** if you add the fee and use that payment you owe a bit more but save the difference in payments, that why it is better to use the same payment.

Add fee	owe
£613.63	£101,110.31
£626.71	£101,034.73

differnce in owed ~£75
difference in payments ~£845 over 5 years.

adonis10

getmore4less said:

You must have done something wrong because the total payments are still less with the fee.

rate	fees	payment	add fees
1.19%	£999.00	£608.95	£613.63
1.49%	£0.00	£626.71	£626.71

£608.95 * 60 + £999 =  £37,535.80  payments + fee

£613.63 * 60 = £36,817.57   payments with the fee added(but leaves a bit more debt see below ***)

£628.71 * 60 = £37,602.68    payment for the no fee higher than the other 2 ways

 if you pay the fee up front then you should compare borrowing less on the no fee 

£608.95 * 60 = £36,537

£621.90 * 60 = £37,314

no fee higher payments 

no fee is more total payments whichever way you do it.
none of that takes into account how much you owe at the end of 5 years
even with the lower payment you have a smaller debt at the end.

amount	rate	payment	owing
£130,000.00	1.19%	£608.95	£100,339.24
£130,000.00	1.49%	£626.71	£101,034.73

*** if you add the fee and use that payment you owe a bit more but save the difference in payments, that why it is better to use the same payment.

Add fee	owe
£613.63	£101,110.31
£626.71	£101,034.73

differnce in owed ~£75
difference in payments ~£845 over 5 years.

Where does your £613.63 come from?

getmore4less

£130999 1.19% 

adonis10

@getmore4less
Thanks for your help here. I have done the following calculation to compare fee and no fee. Assumptions as follows:
Repayment - £606 with fee and £616 without fee
Interest - 1.09% with fee and 1.34% without fee
Fee - added to the starting balance

Outcome:
Interest saved - £1,583
End balance - negligible difference of £34
Total repayments - £549 saved with the fee mortgage

Do you think it looks correct? Let me know if you want me to clarify any formulae to sense check my figures.

getmore4less

You have changed the rates......and done the comparison over 5y 1m?

Why is your date changing forward each month?

over 20years

rate	fees	payment	add fees	interest only	IO +F
1.09%	£999.00	£600.78	£605.41	£117.63	£118.54
1.34%	£0.00	£615.41	£615.41	£144.61	£144.61

interest on that first month looks a bit wrong in your table.

£129,500 * 0.0134/12 = £144.61 you have got £147.38



add fee do the term

amount	rate	payment	owing	interest
£130,499.00	1.09%	£605.41	£99,975.66	£6,406.77
£129,500.00	1.34%	£615.41	£99,797.37	£7,837.54

owe ~£180 more but ~£600 less in payments


add fees make payment the same.

amount	rate	payment	owing	interest
£130,499.00	1.09%	£615.41	£99,348.68	£6,389.85
£129,500.00	1.34%	£615.41	£99,797.37	£7,837.54

~£450 saved paying the fee

adonis10

getmore4less said:

You have changed the rates......and done the comparison over 5y 1m?

Why is your date changing forward each month?

over 20years

rate	fees	payment	add fees	interest only	IO +F
1.09%	£999.00	£600.78	£605.41	£117.63	£118.54
1.34%	£0.00	£615.41	£615.41	£144.61	£144.61

interest on that first month looks a bit wrong in your table.

£129,500 * 0.0134/12 = £144.61 you have got £147.38



add fee do the term

amount	rate	payment	owing	interest
£130,499.00	1.09%	£605.41	£99,975.66	£6,406.77
£129,500.00	1.34%	£615.41	£99,797.37	£7,837.54

owe ~£180 more but ~£600 less in payments


add fees make payment the same.

amount	rate	payment	owing	interest
£130,499.00	1.09%	£615.41	£99,348.68	£6,389.85
£129,500.00	1.34%	£615.41	£99,797.37	£7,837.54

~£450 saved paying the fee

Rate change - latest rates based on a call with HSBC last week. Sorry, should have said about that (been a while since the OP!).

Duration - they said it would be 61 payments (for some unknown reason) so based it on that.

Date changing forward - excel was playing up, fixed and edited the table now (see above).

First month interest - is correct but thinking about it it should be a little higher actually as it is based on the preceding 31 days (interest is calculated daily so I have based the formula on this - hidden a few columns to make it fit in the thread). So my calculation for October, for example, will be 30/365 * the previous closing balance (preceding month had 30 days). It isn't perfect but as close as I can get it without a proper algorithm!

So, in essence, it is cheaper to take the lower interest option and add the fee to the balance (don't have the cash to pay it up front)? I will also attempt to overpay when possible.

getmore4less

Standard amortization get close enough as you have to account for more than just month length because some payments fall on weekends and BH so go in at different times to the regular schedule which changes the numbers.


Are you using rounded/truncated payments? 
£606 and £615 as that will skew the result a bit.

Also the interest still don't look right if you look at Jan-March each year when there is are  31,28,31 days 

on the fee pay you see the drop on the no fee it is flat.

mortgage often have end dates these days  around the 5 years mark so tend to run for a month or two more