Product fees

Loustilese

What am I’m missing - Why would you pay a product fee of £999 for a lower mortgage rate on a 5 year fixed rate if the total additional amount in monthly payments you would pay on the higher interest rate  where no product fee is payable is £924. I’m paying £999 product fee so that I can save £924. Is there anything else I’m missing as to why I would pay the product fee and get the lower rate. The difference in rates is 0.24% on a mortgage balance ok 120k.

Edi81

You wouldn’t. There is a point as the balance decreases that no fee is cheaper. 

Emmia

We always look at the overall cost in the fix period. If it costs less with the fee (which we pay, rather than adding it to the mortgage) we pay the fee. If it costs less for a no fee product, we do that.

We also consider what length of fix to go for on a similar basis, but given interest rate history over the last few years, that one is more of a gamble.

housebuyer143

If you have a larger loan then the fee is worth it, however, for the amount you have it is almost never worth it to have the fee and instead you should go for the higher rate. 
I also look at the fee over the fixed period, rather than over the whole mortgage.

kingstreet

The outstanding balance at the end of the five years will be lower.

feynman33

To assess the benefits of paying the fee you need to compare the difference in monthly payments over 5 years AND what your mortgage balance will be after 5 years, use the mortgage calculator page.

Also, don't compare paying the fee upfront with borrowing the same amount with no fee as that's just misleading savings.

The comparison should be 'add fee to mortgage' vs 'no fee' or 'pay fee upfront' vs 'no fee and borrow 999 less'.

I think you should benefit nearly £200 on the lower rate with fee...

ACG

The balances will be different (your starting with a balance that is a grand higher assuming you add the fee)
The cost will be difference (in your case £924 v £999.
Some people are used to interest rates of 1-2%, so would rather pay the fee to get a lower repayment. 

Plenty of different factors and some will matter more than others depending on your preferences and the numbers involved. 

I am doing an £800k mortgage at the minute where it makes sense to pay the fee to get a lower rate. I am also doing a £103k mortgage where it makes sense to go without the fees. 

Hoenir

Loustilese said:

What am I’m missing - Why would you pay a product fee of £999 for a lower mortgage rate on a 5 year fixed rate if the total additional amount in monthly payments you would pay on the higher interest rate

Lenders want to attract new customers with larger mortgage balances. The adminstration cost of onboarding a client is the same. Fewer customers with larger balances is a more profitable business model.