Renewal Mortgage Options - Are my calculations correct?

n15h

Hi, My fixed rate mortgage (1.29%, £406 per month) finishes at the end of April 2022 and my mortgage provider has contacted me to look at rates for renewing my mortgage with them. The mortgage balance (as of today) is £139K with a term of 35years 7months. I also overpay every month so currently paying £500 each month (£94 on top of £406).

I've had a look at the renewal rates from the lender and also on MSE's Best Buys to get an idea of the rates available out in the market. At the moment, the renewal rates seems to be better than re-mortgage rates of other lenders, plus there are no legal fees or credit searches:

• Renewal Rate A: 1.24% with £999 product fee, £402 (with PF paid upfront) or £405 (with PF added to mortgage);
• Renewal Rate B: 1.44% with no product fee, £415.

There are some very low rates (e.g. with Progressive BS and Furness BS - however, I am not eligible for their products as some of them are exclusive to certain customers, and high product fees above £1000+).

The lender informs that if i choose a renewal mortgage rate that's lower than my current rate, it will move my mortgage to the renewal rate immediately. However, if the renewal rate is higher, it will move to that rate when the current rate ends.

Using the MSE calculators, I couldn't get the same monthly amount as the lender's renewal info as I think the calculator only lets whole numbers to be used for the mortgage term (35 years), but this is what I got when I compared the 2 rates:

• Rate A: 1.24% fixed for 2 years, £409 (£999 upfront) / £412 (£999 added), total cost for 2 years: £9806 / £9877
• Rate B: 1.44% fixed for 2 years, £422, total cost for 2 years: £10125

Based on the above, the MSE calculators shows that the overall balance at the end of Year 2 would be lower on Renewal Rate A even though it has the £999 product fee, and adding the fee is only an extra £71 over the 2 years (9877-9806 = 71) or an extra £3 a month.

My question is whether my calculations using the MSE calculators are correct, and if there anything else I should consider?
Any help is much appreciated.

getmore4less

This is what I get for the base 35y 7m payment

rate	fees	payment	add fees
1.24%	£999.00	£402.77	£405.67
1.44%	£0.00	£416.21	£416.21

there is very simple calc that gets close to  max saving from the difference in rate its the interest only calc. 

Amount * rate difference * years
£139,000 * 0.002 * 2 = £556

There is no way you can cover the £999 fee in 2 years
(needs ~44 months to breakeven)

the generic comparison calculation for repayment its best to  keep it simple, add fee(or not) make the payments the same  using your planned payment  and see what's left.

smallest debt for the same cash put in at the same time  is often the better option.

these deals will probably not be exact 2y(24m) as many have end dates these days I will do for 24m

amount	rate	payment	owing
£139,999.00	1.240%	£500.00	£131,368.86
£139,000.00	1.440%	£500.00	£130,891.87

the no fee saves you ~£477 over paying the fee

Pay fees up front is just an overpayment(borrowing less) so changes the comparisons by a small amount.

if you overpay by £999(the fee) you get

amount	rate	payment	owing
£139,000.00	1.240%	£500.00	£130,344.79
£138,001.00	1.440%	£500.00	£129,863.70

now ~£481

The more you overpay the more you save with the no fee 

getmore4less

which MSE calculator have you used as from what you wrote it reads as if the fee options would save you money

What many forget is if you pay the fee up front you have to take that amount off the no fee option to do the comparison.

n15h

getmore4less said:

which MSE calculator have you used as from what you wrote it reads as if the fee options would save you money

What many forget is if you pay the fee up front you have to take that amount off the no fee option to do the comparison.

Hi, I used the Compare 2 Mortgages calculator. Your calculations make sense as it shows the amount owing at the end of the 2 year fixed rate, whereas the Compare 2 Mortgages calculator only shows the total amount i would pay for the 2 years.

I didn't realise that if paying the fee upfront, the £999 should also be taken off the no fee option for the comparison - Thanks for pointing that out as it means technically I may as well pay the £999 as an overpayment to the no fee option.

getmore4less

https://www.moneysavingexpert.com/mortgages/compare-mortgage-rates/

You have to look at cost and the amount owing.

Makes you wonder how many have been misled by this calculator into making poor choices.

n15h

getmore4less said:

https://www.moneysavingexpert.com/mortgages/compare-mortgage-rates/

You have to look at cost and the amount owing.

Makes you wonder how many have been misled by this calculator into making poor choices.

Yes, that's the calculator i used.

I think I will go for the renewal rate B i.e. the no product fee option.

You're right in that there could be lots of people misled by the calculator, but I guess it's great that there is also this forum for people to check their thoughts/calculations and lots of helpful people on here (like yourself) who give guidance/help.