Mortgage - maths advice please!

dimbo61

Look at " whatsthecost " and add the fee to the total outstànding and the 15 year term.
It shows how much you owe after the 5 years.
You can use this and the 60X monthly payment to work out the overall cost for each deal.
Don't forget the exit fees to leave Natwest

getmore4less

dimbo61 said:

Look at " whatsthecost " and add the fee to the total outstànding and the 15 year term.
It shows how much you owe after the 5 years.
You can use this and the 60X monthly payment to work out the overall cost for each deal.
Don't forget the exit fees to leave Natwest

that approach can get the wrong answers as it does not take account of the difference in payments

getmore4less

looking at all the options mentioned we get for the 5 years.
(using the highest payment that all them need using 15years full term)

amount	rate	payment	owing
£97,999.00	1.39%	£603.48	£67,573.60
£97,995.00	1.14%	£603.48	£66,497.62
£97,490.00	1.24%	£603.48	£66,387.32
£97,000.00	1.38%	£603.48	£66,460.14

break even mortgage(pay fee) against term for the best 2(1.24%/£490 V 1.38%/£0) 

term	mortgage size needed
5	£139,105.35
10	£94,004.08
15	£84,827.54
20	£80,883.91
25	£78,693.46
30	£77,301.90
IO	£72,228.57

as you plan to overpay it will depend how much that is likely to be, it needs to similar to a term less than 10 years  around .9 years gets very close..

amount	rate	payment	owing
£97,999.00	1.39%	£965.86	£45,070.79
£97,995.00	1.14%	£965.86	£44,134.01
£97,490.00	1.24%	£965.86	£43,968.16
£97,000.00	1.38%	£965.86	£43,962.92

Actual break even is £941.52   

given these are less than £100 apart need to check all the other switch fees carefully and also consider the best lender for the next change.

one that offers decent rates on no fee product transfers as next time round it will have swung to no fee.

getmore4less

ukri said:

cornish42 said:

@ukri Haha, thanks!  That's what I thought initially, but both Habito and Trussle have both said 1.14 with 995 fee from TSB is the lowest cost over a 5 year fixed. 
I've got myself all confused about it!

I think they are right. Including balance outstanding at end of 5 years, the TSB mortgage comes in at about £83 cheaper than the 1.38 no-fee if you pay the fee upfront and £32 cheaper if you add it to the loan.

interesting to know how they got that.


for just those two  1.14% £995  v 1.28% £0
for a 0.024% difference and £995 fee the break evens for various terms looks like this

term	mortgage size needed
5	£164,491.51
10	£111,052.61
15	£100,174.50
20	£95,498.09
25	£92,899.63
30	£91,248.09
IO	£85,341.61

15 years the £97k is not big enough to make paying the fee worth while.

doing the fee added

amount	rate	payment	owing
£97,995.00	1.14%	£931.34	£46,264.76
£97,000.00	1.38%	£931.34	£46,106.40

£158 better off no fee

or paid(just like a £995 overpayment) you get

amount	rate	payment	owing
£97,000.00	1.14%	£921.78	£45,800.99
£96,005.00	1.38%	£921.78	£45,633.45

£168 better off no fee 

t2havock

My feeling would be to 
- go for the lowest possible interest rate over the 5 years (1.14)
- Add the 995 Product fee to the loan
- Slowly make overpayments that total (995) over the 5 years ( around £3.50 over 60 months). Which then infect means you have payed no interest on the product fee.
 

amnblog

Hi Cornish

Simple maths will tell you that a £995 fee on £97,000 is worth about 0.2% a year over five years. Basically the difference between the fee and no fee rates.

If you are paying off the capital quickly, the high rate, no fee, product becomes more beneficial. Any of the three rates will not cause a major financial mistake for you.

The reason some monthly payments on products are irrationally lower than on 'lower' rates is that the differences in cost are settled over your full 15 year term, not the 5 year term of the mortgage product. If you check the projected balance at the five year point you will see that it differs between compared products.

The reason you are been advised by Online Brokers that the lower rate with the fee is the best rate is that the FCA (Regulator) instruct them to recommend the 'cheapest' product over the initial term. The way advisers have to calculate that 'cheapest' rate is set out by the Regulator and makes little sense to Brokers let alone borrowers.

Some Brokers would handle a query like yours by explaining how it works, suggesting the 'true cheapest' product, and adding notes to their file accordingly.

The good news in your case is that if you take either of these 3 rates you are not going to be disadvantaged to a level you would notice.

1. (a) 

   one regulated mortgage contract (“contract A”) is cheaper than another (“contract B”) if the total amount payable under contract A in respect of the relevant period is less than the total amount payable under contract B in respect of the relevant period;

2. (b) 

   the “total amount payable” means:

   1. (i) 

      the aggregated monthly payments; and

   2. (ii) 

      includes any product fee or arrangement fee if the customer proposes to pay that fee directly rather than add it to the sum advanced under the contract (and such a fee must be treated in the same way for contract A and contract B when comparing the two contracts);

3. (c) 

   the “relevant period” means:

   1. (i) 

      any discounted or introductory period under contract A; or

   2. (ii) 

      the term of contract A; and

4. (d) 

   monthly payments should be calculated on the assumption that there is no variation to the interest rate that would apply if the regulated mortgage contract were to be entered into immediately, unless the contract expressly varies the interest rate (in which case, the monthly payments should be calculated by reference to rates specified in the contract in relation to the relevant periods).

getmore4less

Not much hope if the regulators running the show can't get the calculations right. 

cornish42

Thanks for all of the replies here, I appreciate it! The explanations above are much more useful that anything I have had back from any brokers elsewhere.

@getmore4less Yes that's a really good point. Looking at the rep of the lender and the follow on rates. For example, HSBC seem to offer the same rates for current customers and remortgage customers. Others seem to only offer the best rates to new customers. So that is definitely sometihng to factor in.

Which? recommend Nationwide and FirstDirect among their top lenders.

I'm hoping to overpay by £300 every month when possible, but I'm going to be doing an extension soon so will probably stop for some of the 5 year term whilst that is going on.

getmore4less

t2havock said:

My feeling would be to 
- go for the lowest possible interest rate over the 5 years (1.14)
- Add the 995 Product fee to the loan
- Slowly make overpayments that total (995) over the 5 years ( around £3.50 over 60 months). Which then infect means you have payed no interest on the product fee.
 

Of course if you add it to the loan you do pay interest on the fee.

£3.50 over 60months gets £210 now where near enough to pay off a £995 fee


It would be £17.07pm to pay the fee back in 5 years costing £29.10 in extra interest.

amount	rate	payment	owing	interest
£995.00	1.14%	£17.07	£0.00	£29.10

with a £97k loan  using the 15y and 5y

amount	rate	payment	owing	interest
£97,000.00	1.14%	£586.53	£66,490.32	£4,682.22

Just adding and using the 15y terms gets £592.55(£6pm not £3.50) but that leaves you ~£680 short and ~£48 in in extra interest

amount	rate	payment	owing	interest
£97,995.00	1.14%	£592.55	£67,172.36	£4,730.25

To owe the same adding the fee needs a payment of £603.60 

amount	rate	payment	owing	interest
£97,995.00	1.14%	£603.60	£66,490.32	£4,711.32

£17.07pm  and 29.10 extra interest QED

clairebeth

I had this exact question when I was comparing mortgages the other day. 

I realised the problem was that I was 'adding fees to mortgage balance' and then sorting by 'initial term cost'.

The problem is that if you add the fees to the mortgage, it divides the fee over the entire term of the mortgage. For instance, £1k over 25 years, making that fee £40 a year, which makes the initial term cost seem cheaper, particularly if the initial term is only a year or two, it will automatically say that this is the cheaper option. 

If you don't add the fees to the mortgage balance, it assumes you will pay this upfront. So, in the above example, the calculator says you're paying £1k in fees in the first 5 years as opposed to £200 (at £40 a year).

So really, the trick is not to sort by 'cost over initial term' and to sort by interest rate and then work outhow much the fees work out to in interest as shown above! 

But just thought I would butt in to say that that's why I thinkthe calculation can be flawed!