Fee or No Fee comparison

Thisisnotasmile

Hi,

I'm coming to the end of a 5-year fixed rate term and have spoken to a mortgage advisor at my existing provider about options for a product transfer. I have approximately £80,000 outstanding on the debt and below 60% LTV. We've established another 5-year fix is right, however they are advising a 1.59% interest rate with no fee is better for me than a 1.25% rate with a £999 fee, which I'm able and willing to pay up-front. My calculations suggest the 1.25% + £999 option will cost me less in interest + fees over the 5 years than the 1.59% option would. I also believe I'll have less debt at the end of the fixed term taking the lower interest rate (this feels obvious as the fee is being paid up front).

If it matters, I've asked for minimum monthly payments in the region of £770-£800 which I believe equates to a 9-10 year term depending on specifics, but will be overpaying regularly regardless. Current monthly payments are £850 which I will continue in the short term, but am budgeting to increase monthly payments to £1000 very soon.

Have I missed something when comparing these options, or am I right that the 1.25% fix is better? I wouldn't even question it if a mortgage advisor hadn't been telling me otherwise...

getmore4less

Quick calc is max saving interest only

rate difference * amount * year

0.0034 * £80000 * 5 = £1360


Needs checking with with planned payment.

Add fees make the payment the same for both.

If paying the £999 fee upfront you need to compare with £79001 on the no fee.

If planning to overpay you need to take that into account as it reduces the savings from the lower rate.

getmore4less

can do the number now.

paying the fee is just an overpayment you have to do it to both to do the comparison.

breakeven payment on £80k 

amount	rate	payment	owing
£80,999.00	1.25%	£752.14	£39,676.68
£80,000.00	1.59%	£752.14	£39,676.68

Any payment over £752.14 better off with NO fee.

add fee pay £800

amount	rate	payment	owing
£80,999.00	1.25%	£800.00	£36,715.03
£80,000.00	1.59%	£800.00	£36,689.90

After 5years better off by £25  no fee.


pay fee upfront breakeven payment(£79,001 on the no fee)

amount	rate	payment	owing
£80,000.00	1.25%	£717.45	£40,759.95
£79,001.00	1.59%	£717.45	£40,759.95

pay fee pay £800

amount	rate	payment	owing
£80,000.00	1.25%	£800.00	£35,651.64
£79,001.00	1.59%	£800.00	£35,608.30

£43 better off no fee


£1k  on the £80k after 5 years

amount	rate	payment	owing
£80,999.00	1.25%	£1,000.00	£24,338.74
£80,000.00	1.59%	£1,000.00	£24,208.61

£130 better off with the no fee


how did you do the calculations?


For any rate difference for a fee there is a breakeven mortgage size which depends on the payment(which is related to full term)

bigger payment == shorter term == bigger mortgage needed.

here is the table for this difference of 0.34% and a £999 fee

5	£116,538.39
10	£78,637.62
15	£70,916.81
20	£67,597.45
25	£65,753.18
30	£64,581.19
IO	£60,559.42

on £80k  breakeven is ~ 9y 7m(~£751)  
9y 3 m £775
8y 11m  £802
8y 5m £847
7y 1m  £996
 

Thisisnotasmile

Okay, so I've recalculated and agree your figures. I think what I've missed is that if I take the no fee product I should assume a lump-sum overpayment of £999 in month 0 to do the comparison. I was looking at the £999 as an additional cost for product 2 rather than a cost I will (should) pay regardless.

I'm still confused though as the MSE mortgage comparison tool tells me the £999 fee product is "cheaper" over 5 years base on the rates and fees given, despite its assumption that I'm adding the fee to the mortgage balance which I wouldn't. Is the difference due to the calculator working on mortgage duration (9 years) rather than fixing the monthly payments?

I appreciate that the more I overpay, the more it'll play into the no-fee product too. As I intend to up my direct debit to £1000 in the next couple of months it seems sensible to go for that product despite the remaining (small) question marks over the comparison. 

getmore4less

MSE comparison tool does not do the calculations properly over the fixed term.
there are 2 Barclays deals on there at the moment which have the same payment for 1.19% and 1.25%

it does try to factor in cashback and other fees which useful.

Its ok when the numbers are widely different but when close like yours are it is no good.


last one I looked at it was about £300 out over the 5 years.


the basic compare gets close(once you do the last bit(total cost and amount owing)
https://www.moneysavingexpert.com/mortgages/compare-fixed-rate-mortgages/