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Mortgage - maths advice please!
Comments
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clairebeth said: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!
(Same starting point)
Then use the same payment per month and see what's left at the end of the period.1
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