disagreed with mortgage product advice

ro2778 · 5 February 2018 at 8:01PM

hi all just thought I'd share my little tale about which mortgage product an advisor recommended and why I disagreed with the advice.

I'm currently porting my mortgage from a sale and need to borrow more. But we can ignore the port and just pretend the new place I'm buying costs £214,000.

So I contacted my bank and decided to go for a 2 year product and they have 2 choices for capital repayment mortgages.

1) 1.64% with £725 booking fee and £263 valuation fee
2) 1.94% fee free

The advice I got was over 24 year term the fee free product was better because:
1.64% product, price pcm £899 x 24 = £21331 + fees = £22,319
1.94% product, price pcm £914 x24 = £21995 therefore roughly £324 less.

Therefore I was advised to go for the fee free product.

However looking more closely your £988 of fees gets you other positive metrics such as...
1.64% mortgage remaining after 2 years = £199,199
1.94% mortgage remaining after 2 years = £199,724
so for spending £324 more over 2 years you end up owning £525 more of your house.

Looking at what the bank earn i.e., interest and fees:
1.64% mortgage total interest + fees in 2 years = £7763
1.94% mortgage total interest = £8044
so the bank earns more from the product their adviser recommends by £281

If I go with the adviser recommendation, which I intially did because she said "I'm on your side I'm trying to find the best deal for you" then I pay slightly less but own even less of my house after 2 years and pay more to the bank in interest. If I go with the lower rate product, then I pay more but own even more of my house and pay less to the bank in interest, and this is before any overpayments are taken into account which will of course skew the outcome even more in my favour.

I went for the lower rate product against advice, so perhaps someone here can tell me (assuming the sums are correct) why I'm wrong? The more interesting question is should this be allowed, this advice is being framed as what's in the customers best interest, when clearly it's what's in the banks best interest. The bank are clearly taking advantage of the definition of what is in the customer's best interest by interpreting best interest soley as "outgoings". However, we take out mortgages to own our houses and I would guess most of us would rather own more of our houses and pay less interest.

ACG · 5 February 2018 at 8:14PM

Any fees have a bigger impact on a smaller mortgage than they do on a larger one. So if the top up Mortgage you are applying for is £214k there is a good chance that the lower rate would be better.

If the existing mortgage is £100k and you are applying for an extra £114k and only the £114k is on the new product then it is probably not so cut and dry.

I am not saying you are right or wrong, just that you are asking for advice with only part of the equation.

kingstreet · 6 February 2018 at 9:51AM

So the moral of the story here is not only do you need to look at rate, fees, cashback etc but you also take into account the balance remaining at the time the deal expires?

That's a given.

Paying any fee upfront v adding the fee to the loan will also yield a difference.

Amst · 6 February 2018 at 7:17PM

You can hardly blame the banks for the bad advice (if it was bad advice). They won't care whether you go for option a or option b as they'll both be priced with a similar level of nim return.

Thrugelmir · 6 February 2018 at 8:30PM

ro2778 wrote: »

However looking more closely your £988 of fees gets you other positive metrics such as...
1.64% mortgage remaining after 2 years = £199,199
1.94% mortgage remaining after 2 years = £199,724
so for spending £324 more over 2 years you end up owning £525 more of your house.

If the fees are added to the mortgage (25 year term) and the repayments are made monthly in arrears, i.e. 1st of the month following. Then the fee free option is indeed cheaper by some £409.

spaceboy · 6 February 2018 at 11:17PM

Fee free is almost always cheaper overall is it not?

Thrugelmir · 6 February 2018 at 11:30PM

spaceboy wrote: »

Fee free is almost always cheaper overall is it not?

Depends on the precise circumstances. Never wise to generalise.

Often there's to much emphasis on the monthly outgoing figure. Lower equating to cheaper. Rather than the balance left owing at the end of the fixed term. Which can paint a very different picture.

getmore4less · 7 February 2018 at 12:43AM

if you are porting then you need to look at both bits separately if the rates are different.

if borrowing the full amount on the new rate won't you have an ERC?

Your numbers looks like you would have been borrowing different amounts.

1.64% £899pm over 24y is borrowing £213915 after 2y £199,124
1.94% £914pm over 24y is borrowing £210317 after 2y £196,282

disagreed with mortgage product advice

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