Should we avoid mortgage product fees?

akira181

It's that dreaded time to remortgage, our current fix is ending in 4 months  Our current lender has offered a fee-free 2 year fix at 5.15%, it's like they don't want us as a customer anymore  

We've been overpaying the mortgage consistently since the second year and it'll be around £107k by the time my current fix ends. A conservative guess is that the flat is worth around £230k, giving a 46% LTV if that makes a difference. We're thinking of going for a 2 year fix.

I've had a look on MSE Mortgage Best Buys and the top options are (based on monthly payment, not entirely sure if I should be looking at Monthly Payment of MSE Total Cost on the comparison):

• Lloyds, 3.71%, £999 setup fee
• First Direct, 3.84%, £490 setup fee
• First Direct, 4.04%, £0 setup fee

If my maths is correct, the difference between 4.04% and 3.71%, the 0.33% difference in interest means a saving of less than £400, so paying a setup fee for a 2 year fix isn't worth it?

El_Torro

Yes, looks like First Direct are the better option. Not much in it between the two First Direct Options but I'd probably go for the one without the fee. 

Regarding your LTV, when you get it down to 60% this usually gives you more competitive options than a higher LTV. I don't think there's much difference in the offer between a 60% LTV and aa 46% LTV. 

Jemma01

Not an expert, hope others give you a better direction. If I were you, I think option 3 is the cheapest, will be even cheaper if you keep up with the 10% overpayments

Emmia

Really you need to work out the total cost over the term + fees (if needed). Also remember that adding the fee to the mortgage means your mortgage will be slightly larger as a result. It is better to pay any fee upfront and avoid interest on it.

akira181

Thanks, just wanted to double check I wasn't making some obvious mistake.

We've been keeping payments at 1200 a month by a combination of reducing the term when remortgaging and over payments. It's what we were paying for rent before so we know we can manage that reasonably comfortably. 

If I apply for the first direct remortgage and in the off chance a better offer comes along in 3 months, am I still able to back out and go for the new one? 

amnblog

£999 is close to one percent of your borrowing, half a precent a year. This does not work for your level of borrowing, even without your heavy overpayments.

kingstreet

Products with fees suit larger mortgages and/or longer-term fixes.

la531983

kingstreet said:

Products with fees suit larger mortgages and/or longer-term fixes.

My mortgage balance is around £75k, just renewed it and the product with a £999 fee and an interest rate of 3.86% comes out with the same monthly payment (give or take 50p) as a product with a £0 fee and an interest rate of 4.00%

Of course this was assuming the £999 was added to the mortgage balance.

amnblog

la531983 said:

kingstreet said:

Products with fees suit larger mortgages and/or longer-term fixes.

My mortgage balance is around £75k, just renewed it and the product with a £999 fee and an interest rate of 3.86% comes out with the same monthly payment (give or take 50p) as a product with a £0 fee and an interest rate of 4.00%

Of course this was assuming the £999 was added to the mortgage balance.

The monthly payments may be the same, but the lower interest rate product is saving under £105 interest per annum so £999 product fee does not work with that level of borrowing. 

The 'pain' of taking the fee rate will be shown in the balance when the rate ends.