Mortgage fee vs no fee when overpaying

rfoodie93

Hello! 

I wondered if anyone could help me please. My mortgage is up for renewal and I'm trying to work out if I would be better off paying £999 for the lower rate? I think ( although I'm probably wrong) the no fee rate will cost me £1500 more over the 2 years. (Likely to move after 2 years so not looking at the full term of the mortgage) 

I also plan to overpay buy around £200-300 a month. 

Thank you so much for your help

ian1246

The no fee rate is £62.31 more a month than the £999 fee one.

£62.31 x 24 = £1495.44 extra costs in monthly payments over 2 years vs. The £999 fee one.

So by spending £999 on the fee it ll save you £1495.44 over the neat 2 years - meaning you'd be £496.44 better iff overall going for the fee one.

So you are, indeed, correct

ACG

ian1246 said:

The no fee rate is £62.31 more a month than the £999 fee one.

£62.31 x 24 = £1495.44 extra costs in monthly payments over 2 years vs. The £999 fee one.

So by spending £999 on the fee it ll save you £1495.44 over the neat 2 years - meaning you'd be £496.44 better iff overall going for the fee one.

So you are, indeed, correct

Just as a bit of a caveat to that... Your balance will be £999 higher assuming you add the fee, it will take you more than 2 years to clear that £999 and you will also pay interest on it. 

amnblog

Your current balance is the key missing figure

Emmia

If you pay the fee upfront i.e. don't add it to the mortgage then you'll save money.

If you add it to the mortgage then it may be more expensive as there will be ongoing interest once your new rate ceases, as your mortgage will always be slightly larger than if you hadn't added the fee 

We always pay the fee upfront if the fee product works out cheaper over the period.

rfoodie93

Thanks for the replies so far. The current balance is £230k and I would pay the fee upfront

kingstreet

The outstanding balance at the end of the fixed period is also lower if you choose the lower rate so you need to take into account;-

interest paid
fees paid
outstanding balance

to ensure you correctly calculate the difference.