Fixed mortgage Advice Required.

Kellm9

N9eav wrote:

When I called my financial advisor around for a remortgage last week, she did not even open her bag. She said that seeing as I had a Nationside mortgage already I should stay there as they have the best deals.... Their best 2 yr fixed is 4.39% Fees free and booking fee £398
http://forums.moneysavingexpert.com/showthread.html?t=73159

With the Nationwide you can also take the 2 yr fixed (infact any of the deals)with no booking fee. The rate goes up from 4.39% to 4.79%, still a good rate, do the maths. I'm an existing customer and only remortgaging £56k so I'm going for the 4.79% and not paying the booking fee.

Which ever way you go you have to pay £95 admin fee.

MarkyMarkD

AuntyJean wrote:

I am a complete ignoramous when it comes to mortgages and in my case all I want is the cheapest overall mortgage (ie the lowest amount that you have to pay to borrow money over a term).

Could someone please do some number crunching and explain the true overall cost based on the following assumptions.

Interest only (Re-)mortgage amount £75,000
Term 15 years, fixed for 5 years at an initial rate of 4.48% then 5.75%
with no early redemption fee.
Finally, the ridiculous assumption that interest rates do not change over 15 years.

Now, my question is if I were to move that mortgage after the initial 5 years (knowing that I am only paying off the interest and none of the capital), what would be the amount required by the first mortgage company to transfer to another one (I don't mean fees, and given no early repayment charges).

I just can't get my head around the fact that you could move to another company borrowing the same amount (£75,000) for another low initial rate but over 10 years, then moving it again in 5 years to cover same amount for 5 years.

Would this cost more than leaving it where it is for the full term? According to my calculations total interest leaving it where it is would be £59,925.60, whereas moving it would be £50,400. So why do lenders give discounted initial rates? There has to be a catch?

Assuming you were putting any extra money into say an ISA, after 5 years you could reduce the capital thereby cutting the rate even more.

There's not a catch. Initial discounted rates are not (very) profitable for the lenders but they do them in the hope that some of the customers will "stick" at the higher go-to rate. To a large extent, the customers who do stay with one lender for the long term (a decreasing number all the time) subsidise those who switch around all the time.

MarkyMarkD

Kellm9 wrote:

With the Nationwide you can also take the 2 yr fixed (infact any of the deals)with no booking fee. The rate goes up from 4.39% to 4.79%, still a good rate, do the maths. I'm an existing customer and only remortgaging £56k so I'm going for the 4.79% and not paying the booking fee.

Which ever way you go you have to pay £95 admin fee.

4.79% isn't a good rate in your circumstances.

£56,000 x 0.40% = £224 x 2 years = £448.
£389 x 1.0439^2 = £424.

It's cheaper to pay the fee, unless you are borrowing less than £52,988, on this combination of rate differential and fee.

Kellm9

Hi MarkyMarkD,

Thanks for your reply. I was really pointing out that you could get the deal without a fee.

I could be wrong but my maths do not agree with yours.

I calculated as follows :-

£56k at 4.79% for 25yrs = £320.56 / month.
£56k at 4.39% for 25yrs = £307.78 / month.

Diff = £12.78 / month x 24 months = £306.72

So over two years I would pay £306.72 more but would not have to pay the £389 reservation fee, saving me £82.28.

Do you agree ? Am I missing something, I haven't changed yet so I would welcome any comments.

Thanks
Kellm9

Xbigman

Waiting for the next BOE meeting is not the issue. The C&G refix the OP mentions was 5.59 2 months ago and 5.29 last month. So at least a .50 drop already factored in by C&G, and they are amongst the slowest to change.

Also, why only talk about 2 year fix's? My personal preference is for longer term security so I'm looking at a 7 year fix. Just a thought.
Regards



X

MortgageGenie

Kellm9, there's a difference in the capital oustanding at the of the 2 years of £138.

Kellm9

MortgageGenie wrote:

Kellm9, there's a difference in the capital oustanding at the of the 2 years of £138.

Yes, but are my calcs wrong ?

I'm not sure if I should pay the fee or not. I'm certainly no expert in this area, I just used the difference between the monthly payments.

MarkyMarkD

Yes, your calcs are wrong. As MG says, you've ignored the fact that you've saved money partly because you've repaid less capital.

You didn't want to compare the monthly payments, but the actual amount of interest charged, which is what I did.

You SHOULD pay the fee, as it's very slightly cheaper for you, as per my post.