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  • FIRST POST
    • MSE Guy
    • By MSE Guy 20th Jul 11, 3:03 PM
    • 1,628Posts
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    MSE Guy
    MSE News: Mortgage rates at record low, and they may drop further
    • #1
    • 20th Jul 11, 3:03 PM
    MSE News: Mortgage rates at record low, and they may drop further 20th Jul 11 at 3:03 PM
    This is the discussion thread for the following MSE News Story:

    "Some brokers believe prices could fall yet more, given few expect the Bank of England base rate to rise any time soon ..."

Page 1
  • lemondy
    • #2
    • 20th Jul 11, 3:21 PM
    • #2
    • 20th Jul 11, 3:21 PM
    Anybody guess whether First Direct will lower their rates soon? I love FD but am coming up for remortgage and will move to a cheaper fix (2yr, Woolwich @ 2.54%) unless FD step up.
    • JimmyTheWig
    • By JimmyTheWig 20th Jul 11, 3:28 PM
    • 11,885 Posts
    • 11,412 Thanks
    JimmyTheWig
    • #3
    • 20th Jul 11, 3:28 PM
    • #3
    • 20th Jul 11, 3:28 PM
    Is it valid to calculate an APR for the "deal" (i.e. tied in) part of a mortgage? As an APR should, this would include fees.
    That's what I would like to see when comparing mortgages.

    They quote an APR for the entire term which, given the deal part is only a small fraction of this, is always pretty close to the SVR that you revert to. On the basis that hardly anyone keeps a mortgage for the full 25 years I see this as a meaningless figure.
    They quote the interest rate for the deal part, but that is pretty meaningless when you have to pay a significant fee to get it. It would be perfectly possible for someone to offer a 0% mortgage rate if the fee was big enough.
    An APR for the deal part of the mortgage would be the best way to compare like with like.

    It would also then be interesting to see if this APR was now the lowest in recent years or if people have been dropping their rates with one hand and raising their fees with the other to make it look good as everyone concentrates on the rate.
    • Leon W
    • By Leon W 20th Jul 11, 3:52 PM
    • 1,679 Posts
    • 1,127 Thanks
    Leon W
    • #4
    • 20th Jul 11, 3:52 PM
    • #4
    • 20th Jul 11, 3:52 PM
    As you have worked out JimmyTheWig, the APR is a complete waste of time !

    I have long given up trying to explain this to clients as it just prompts more questions.

    To answer your question, no, it is not valid to calculate an APR for the "deal" because APR is not designed to do that. It has to be the complete term plus exit fees, charges etc etc which brings me back to my first point. It's a waste of time !

    • JimmyTheWig
    • By JimmyTheWig 20th Jul 11, 4:12 PM
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    JimmyTheWig
    • #5
    • 20th Jul 11, 4:12 PM
    • #5
    • 20th Jul 11, 4:12 PM
    Thanks Leon. But do agree the APR for the deal would be a useful number to calculate?

    E.g. mortgage A has fees of £1000 and charges 3.0% for two years while mortgage B has fees of £500 and charges 3.5% for four years.
    Assuming mortgage A was still available in two years time I would want to know the relative costs of doing mortgage A twice against doing mortgage B. The APR that I am talking about would give that comparison.
    • Consumerist
    • By Consumerist 20th Jul 11, 4:50 PM
    • 5,253 Posts
    • 2,631 Thanks
    Consumerist
    • #6
    • 20th Jul 11, 4:50 PM
    • #6
    • 20th Jul 11, 4:50 PM
    E.g. mortgage A has fees of £1000 and charges 3.0% for two years while mortgage B has fees of £500 and charges 3.5% for four years.
    Assuming mortgage A was still available in two years time I would want to know the relative costs of doing mortgage A twice against doing mortgage B. The APR that I am talking about would give that comparison.
    Originally posted by JimmyTheWig
    The problem, I think, with comparing these two deals in any meaningful way is that the APR would depend on how much you were borrowing. i.e. how large the fee is compared to the size of the loan.
    Last edited by Consumerist; 20-07-2011 at 5:24 PM.
    Warning: In the kingdom of the blind, the one-eyed man is king.
    • Thrugelmir
    • By Thrugelmir 20th Jul 11, 5:34 PM
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    Thrugelmir
    • #7
    • 20th Jul 11, 5:34 PM
    • #7
    • 20th Jul 11, 5:34 PM
    mispost. ...........
    “If the financial system has a defect, it is that it reflects and magnifies what we human beings are like. Money amplifies our tendency to overreact, to swing from exuberance when things are going well to deep depression when they go wrong. Booms and busts are products, at root, of our emotional volatility.”
    ― Niall Ferguson
    • Consumerist
    • By Consumerist 20th Jul 11, 5:36 PM
    • 5,253 Posts
    • 2,631 Thanks
    Consumerist
    • #8
    • 20th Jul 11, 5:36 PM
    • #8
    • 20th Jul 11, 5:36 PM
    E.g. mortgage A has fees of £1000 and charges 3.0% for two years while mortgage B has fees of £500 and charges 3.5% for four years.
    Assuming mortgage A was still available in two years time I would want to know the relative costs of doing mortgage A twice against doing mortgage B. The APR that I am talking about would give that comparison.
    Originally posted by JimmyTheWig
    Perhaps comparing the total costs over the 4-year period may be more useful

    Mortgage A (£100,000)
    £100,000 @ 3.0% pa = £3,000 pa = £12,000 interest (4 yrs) + £2,000 fees = £14,000 total cost

    Mortgage B (£100,000)
    £100,000 @ 3.5% pa = £3,500 pa = £14,000 interest (4 yrs) + £500 fee = £14,500 total cost

    So, for a £100,000 loan, the total cost of 2 times Mortgage A would be £500 less than Mortgage B over the 4-year period.

    Does this sort of calculation work for you?
    Warning: In the kingdom of the blind, the one-eyed man is king.
    • Thrugelmir
    • By Thrugelmir 20th Jul 11, 5:36 PM
    • 64,976 Posts
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    Thrugelmir
    • #9
    • 20th Jul 11, 5:36 PM
    • #9
    • 20th Jul 11, 5:36 PM
    Perhaps comparing the total costs over the 4-year period may be more useful

    Mortgage A (£100,000)
    £100,000 @ 3.0% pa = £3,000 pa = £12,000 interest (4 yrs) + £2,000 fees = £14,000 total cost

    Mortgage B (£100,000)
    £100,000 @ 3.5% pa = £3,500 pa = £14,000 interest (4 yrs) + £500 fee = £14,500 total cost

    So, for a £100,000 loan, the total cost of 2 times Mortgage A would be £500 less than Mortgage B over the 4-year period.

    Does this sort of calculation work for you?
    Originally posted by Consumerist
    On basis of 25 year total term, fees added to mortgage,

    Mortgage A - total repayments £23,218

    Mortgage B - total repayments £24,150

    So B more expensive by £932
    “If the financial system has a defect, it is that it reflects and magnifies what we human beings are like. Money amplifies our tendency to overreact, to swing from exuberance when things are going well to deep depression when they go wrong. Booms and busts are products, at root, of our emotional volatility.”
    ― Niall Ferguson
    • Consumerist
    • By Consumerist 20th Jul 11, 5:39 PM
    • 5,253 Posts
    • 2,631 Thanks
    Consumerist
    mispost. ...........
    Originally posted by Thrugelmir
    Oops! Sorry Thrugelmir, I edited a previous post then decided to make a new post of the edit because it was a bit lengthy.
    Warning: In the kingdom of the blind, the one-eyed man is king.
    • Thrugelmir
    • By Thrugelmir 20th Jul 11, 5:42 PM
    • 64,976 Posts
    • 57,299 Thanks
    Thrugelmir
    Oops! Sorry Thrugelmir, I edited a previous post then decided to make a new post of the edit because it was a bit lengthy.
    Originally posted by Consumerist
    Though I had lost my marbles........

    and was on the wrong thread.
    “If the financial system has a defect, it is that it reflects and magnifies what we human beings are like. Money amplifies our tendency to overreact, to swing from exuberance when things are going well to deep depression when they go wrong. Booms and busts are products, at root, of our emotional volatility.”
    ― Niall Ferguson
    • Consumerist
    • By Consumerist 20th Jul 11, 5:44 PM
    • 5,253 Posts
    • 2,631 Thanks
    Consumerist
    On basis of 25 year total term, fees added to mortgage,
    Mortgage A - total repayments £23,218
    Mortgage B - total repayments £24,150
    So B more expensive by £932
    Originally posted by Thrugelmir
    I looked at that option but realised that the repayments included an element, be it ever so small, of capital repayment, not just interest and charges.

    Edit
    I'm open to argument on this one. We seem, however, to agree on which option is the better.
    Last edited by Consumerist; 20-07-2011 at 5:50 PM.
    Warning: In the kingdom of the blind, the one-eyed man is king.
    • Thrugelmir
    • By Thrugelmir 20th Jul 11, 6:10 PM
    • 64,976 Posts
    • 57,299 Thanks
    Thrugelmir

    Edit
    I'm open to argument on this one. We seem, however, to agree on which option is the better.
    Originally posted by Consumerist
    What's the follow on interest rate?
    “If the financial system has a defect, it is that it reflects and magnifies what we human beings are like. Money amplifies our tendency to overreact, to swing from exuberance when things are going well to deep depression when they go wrong. Booms and busts are products, at root, of our emotional volatility.”
    ― Niall Ferguson
    • Consumerist
    • By Consumerist 20th Jul 11, 6:21 PM
    • 5,253 Posts
    • 2,631 Thanks
    Consumerist
    What's the follow on interest rate?
    Originally posted by Thrugelmir
    The scenarios assumed that the two-year option would be still available after the first two-year deal had expired. Not a likely scenario but a theoretical one. So the follow-on rate (after year 2) for Mortgage A would be the same 3.0% as for the first two years.

    Hope I understood your question correctly.
    Warning: In the kingdom of the blind, the one-eyed man is king.
    • Pincher
    • By Pincher 20th Jul 11, 10:08 PM
    • 6,516 Posts
    • 2,491 Thanks
    Pincher
    It's the good old Buy to Let proposition:

    5% yield with 2% interest

    If some idiot will lend you the money, it's a money spinner again.
  • rickbonar
    Fill your boots if they're so low.........
    • Thrugelmir
    • By Thrugelmir 20th Jul 11, 10:32 PM
    • 64,976 Posts
    • 57,299 Thanks
    Thrugelmir
    Hope I understood your question correctly.
    Originally posted by Consumerist
    You did,

    The correct deal depends on the amount borrowed. The higher the amount borrowed then more fee and lower interest. Obviously vica versa for a smaller amount.
    “If the financial system has a defect, it is that it reflects and magnifies what we human beings are like. Money amplifies our tendency to overreact, to swing from exuberance when things are going well to deep depression when they go wrong. Booms and busts are products, at root, of our emotional volatility.”
    ― Niall Ferguson
    • JimmyTheWig
    • By JimmyTheWig 21st Jul 11, 8:31 AM
    • 11,885 Posts
    • 11,412 Thanks
    JimmyTheWig
    The problem, I think, with comparing these two deals in any meaningful way is that the APR would depend on how much you were borrowing. i.e. how large the fee is compared to the size of the loan.
    Originally posted by Consumerist
    Yes, but that's true in many circumstances.
    The APR for the 25 year term is quoted and includes the fixed fees and the interest payments. This, too, then is dependent on the size of the loan.

    Perhaps comparing the total costs over the 4-year period may be more useful
    Originally posted by Consumerist
    In this instance, yes, comparing the total cost over the 4-year period would be equally useful to comparing the APR over the deal periods.
    But that's only because I've used simple examples. What if you also wanted to compare mortgage C where the deal lasted 3 years and 9 months? Would you expect a borrower to compare the total costs over a 60 year period (I believe 60 is the LCM of 2, 3.75 and 4) where you take mortgage A 30 times, mortgage B 15 times and mortgage C 16 times?

    Yes, that might be a comparison I might do, but someone less nerdy would be happier just given the answer in the form of the "APR of the deal".
    • roddydogs
    • By roddydogs 21st Jul 11, 8:42 AM
    • 6,437 Posts
    • 2,784 Thanks
    roddydogs
    The headline should read "Savers once again punished for saving!"
  • madmonkey01
    i am with mortgage express, in negative equity, so i have a high(ish) variable interest rate. no escape for me currently.
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