4.12% with 999 fee vs 4.36 with no fee? 2 Years fixed

dockerComposeUp

Hi

hopefully a quick one - this is for borrowing 228,000

The plan is to remortgage after that initial 2 year fixed period

With that in mind, even with the higher interest rate, does it work out better to use the product without fees, assuming remortgaging happens at the end of the 2 year period? 

On-the-coast

Approximately, you’ll save about £95 over two years by paying the fee and taking the lower interest rate. 

£999 fee vs 0.0024% interest (difference) x 228k x 2years.  Ignoring compounding and interest in your savings. 

dockerComposeUp

On-the-coast said:

Approximately, you’ll save about £95 over two years by paying the fee and taking the lower interest rate. 

£999 fee vs 0.0024% interest (difference) x 228k x 2years.  Ignoring compounding and interest in your savings. 

Ahhh okay, looks like my maths was missing something

This is what I did:

1272.07 x 24 + 999 = 31,528.68 (based on 4.12% interest and 999 fee)

1306.64 x 24 = 31,359.36 (based on 4.39% interest which is slightly higher than 4.36, no fee)

On-the-coast

I’m only looking at pure interest… you’ve clearly got some capital repayment built into those figures -  but you haven’t given any detail of the term length. 

feynman33

Use a mortgage calculator and compare the monthly payments over 2 years, with the fee added to the mortgage for the 4.12%. AND compare your outstanding balances after 2 years, to work out the relative costs.

OR

If you plan to pay the fee upfront do the above but only borrowing 127K for the 4.36.

Not much in it, that size mortgage looks around the break even point, you'll likely save £10-15 taking the 4.36.

dockerComposeUp

On-the-coast said:

I’m only looking at pure interest… you’ve clearly got some capital repayment built into those figures -  but you haven’t given any detail of the term length. 

Ah, 25 years and yes it's not an interest only repayment mortgage

I'm working on assumption of changing 2 years in and based on this the fee free one is slightly better? Cmiiw

amnblog

The difference in interest costs is worth £547 per year so the two rates are pretty much equivalent on that level of borrowing.

4.36% - 4.12% = 0.24% x £228,000 =£547 crude but effective for this

Docker - comparing the mortgage payment figures do not allow for the fact that the mortgage balances will reduce at different rates.

Since both deals are targeting zero balance at the end of the mortgage term, the mortgage payments are effectively spreading the difference in the cost of the two products out over the full mortgage term rather than over the two year product term.

eschaton

Depends on whether you pay the fee or add it to the mortgage.

If you add to mortgage then theoretically you could be paying interest on it for 25 years. If you’re paying the fee upfront, go for the cheapest option. 

When I bought my current house in 2005 I had £42k equity so decided to take £2k out to cover any chance of short term cash flow issues due to other large purchases in the previous 9 months. It was only when paying my mortgage off last year that I calculated what that £2k had cost me. I wish I hadn’t done it. It seemed like free money at the time.