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  • FIRST POST
    • 2004nsnazir
    • By 2004nsnazir 14th May 18, 8:42 PM
    • 48Posts
    • 5Thanks
    2004nsnazir
    How to work out interest difference over 5 years?
    • #1
    • 14th May 18, 8:42 PM
    How to work out interest difference over 5 years? 14th May 18 at 8:42 PM
    Im hopeless at maths and numbers and was wondering if anyone could give me a brief explanation on how to work out percentage difference over 5 years.

    Basically one rate is 2.04%
    And other is 1.92%

    Total borrowing amount is 217500 over 30 year period but I want to know how much the difference will be for 5 years between the 2 rates above.

    Really confused and was wondering if there was a simple calculation I could follow.

    Thanks in advance
Page 1
    • DingerUK
    • By DingerUK 14th May 18, 9:02 PM
    • 8 Posts
    • 3 Thanks
    DingerUK
    • #2
    • 14th May 18, 9:02 PM
    • #2
    • 14th May 18, 9:02 PM
    Try this: hxxps://forums.moneysavingexpert.com/showthread.php?t=1157173
    • 2004nsnazir
    • By 2004nsnazir 14th May 18, 9:57 PM
    • 48 Posts
    • 5 Thanks
    2004nsnazir
    • #3
    • 14th May 18, 9:57 PM
    • #3
    • 14th May 18, 9:57 PM
    The link doesnt seem to work??
    • Farmerbob
    • By Farmerbob 14th May 18, 10:00 PM
    • 190 Posts
    • 111 Thanks
    Farmerbob
    • #4
    • 14th May 18, 10:00 PM
    • #4
    • 14th May 18, 10:00 PM
    Try this:

    https://www.moneysavingexpert.com/mortgages/mortgage-rate-calculator
    • amnblog
    • By amnblog 14th May 18, 10:11 PM
    • 10,460 Posts
    • 4,132 Thanks
    amnblog
    • #5
    • 14th May 18, 10:11 PM
    • #5
    • 14th May 18, 10:11 PM
    The difference is 0.12%

    0.12% of 217,500 is 261. That!!!8217;s the approximate difference in year one. Although the capital reduces over five years you can say a 1,250 cost over 5 years is accurate enough.
    I am a Mortgage Broker

    You should note that this site doesn't check my status as a Mortgage Broker, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
    • AnotherJoe
    • By AnotherJoe 14th May 18, 10:30 PM
    • 9,393 Posts
    • 10,377 Thanks
    AnotherJoe
    • #6
    • 14th May 18, 10:30 PM
    • #6
    • 14th May 18, 10:30 PM
    As amnblog has explaimed it pretty much is as simple as working out the difference between the two rates and then multiplying that by the total sum borrowed per year and then multiplying that by the years. .

    Yes if you did it exactly there will be a few pounds difference between approximate and exact but it's not worth the detailed extra calculations when simple gets you within a few quid.
    • 2004nsnazir
    • By 2004nsnazir 15th May 18, 8:47 AM
    • 48 Posts
    • 5 Thanks
    2004nsnazir
    • #7
    • 15th May 18, 8:47 AM
    • #7
    • 15th May 18, 8:47 AM
    The difference is 0.12%

    0.12% of 217,500 is 261. That!!!8217;s the approximate difference in year one. Although the capital reduces over five years you can say a 1,250 cost over 5 years is accurate enough.
    Originally posted by amnblog


    Thank you so im looking at paying 1250 approx? more if I go with the higher rate. I'm going with 5 years fixed for now. The higher rate is with Halifax and I think they have been more helpful to us than the other bank offering lower rate. With Cash back and fees we are only paying 200 to get the mortgage.
    • AnotherJoe
    • By AnotherJoe 15th May 18, 11:27 AM
    • 9,393 Posts
    • 10,377 Thanks
    AnotherJoe
    • #8
    • 15th May 18, 11:27 AM
    • #8
    • 15th May 18, 11:27 AM
    Sorry to be dim but assuming both are 5 year, what benefit are you gaining by paying HSBC 1250 more? If you put that into your pension, in 25 years time it could easily be 5k (in today's money)
    • 2004nsnazir
    • By 2004nsnazir 15th May 18, 2:00 PM
    • 48 Posts
    • 5 Thanks
    2004nsnazir
    • #9
    • 15th May 18, 2:00 PM
    • #9
    • 15th May 18, 2:00 PM
    Hsbc to me seem will be a long process. we need to move forward quick as it has been some weeks since offer has been accepted.


    We are quite young buyers purchasing a big house and I don't think they will scrutinise our outgoings a lot
    • getmore4less
    • By getmore4less 15th May 18, 2:32 PM
    • 32,035 Posts
    • 19,222 Thanks
    getmore4less
    Im hopeless at maths and numbers and was wondering if anyone could give me a brief explanation on how to work out percentage difference over 5 years.

    Basically one rate is 2.04%
    And other is 1.92%



    Total borrowing amount is 217500



    over 30 year period but I want to know how much the difference will be for 5 years between the 2 rates above.

    Really confused and was wondering if there was a simple calculation I could follow.

    Thanks in advance
    Originally posted by 2004nsnazir
    The simple way which gets close is rate difference * amount borrowed * years

    (longer the term the closer it gets)

    Then we have (0.0204-0.0192) * 217500 * 5 = 1305

    for repayment over 30 years we need to look at the payments as lower rate has a lower payment but pays the debt off quicker as well.


    Payments will be 808.28 and 795.25 and after 5 years be left with 189,824 or 189,358

    (808.28-795.25)*12*5 + 189824 - 189358 = 1248

    investing the difference in payments in paying of more debt

    Making the payments both 808 you are left with 189,824 or 188,556

    The real difference is closer to 1268


    Then you need to factor in the difference in costs and other considerations like which have a history of lower fees and better retentions rate.
    • SouthLondonUser
    • By SouthLondonUser 15th May 18, 3:21 PM
    • 492 Posts
    • 67 Thanks
    SouthLondonUser
    As others have said, obviously if you have an interest only mortgage then the principal doesn't amortise, i.e. you owe the same balance throughout the term of the mortgage, so the difference is simply 217,500 x (2.04% - 1.92%) x 5 = 1,305

    In reality,we are talking about an amortising mortgage. Let's say (I'm making the numbers up) that your debt is 100,000 and your monthly instalment is 400. The first month, you pay, let's say, 170 of interest and 230 of capital, for a total of 400. On the second month, your capital has gone down to 100,000 - 230; you still pay 400 the 2nd month, but this 400 is now made up of a greater portion of capital and a smaller portion of interest, because the debt on which you pay interest had gone down.

    Back to your example and your numbers: If you don't know your way around spreadsheets, you can use one of the many loan or mortgage calculator apps. Over 5 years, at 2.04% you'll end up paying 20,454 of interest vs 19,228 of interest at 1.92%. The difference is 1,226 , which is very close to 1,305. It is close because your mortgage lasts 30 years, so over 5 years it doesn't amortise by a huge amount.

    If you recalculate the same number with a 6-year mortgage, instead of a 5-year, the difference shrinks to 799. Why? Because now the whole mortgage lasts 6 years, so most of it will have amortised by the end of year 5.

    @getmore4less, I don't understand where you got your numbers; the payments are not 808 and 795 - I guess you must have made some confusion.

    @OP, you should be aware that getmore4less likes this approach of making the total payment the same when comparing two mortgages; I don't like it because in most cases it is a theoretical exercise with no practical application: unless you can be bothered to remember to make an extra manual payment of 15, or whatever the difference is, every month, which I know I can't be bothered with, it remains a theoretical point, because many banks don't allow you to set up a regular overpayment every month. This is why I prefer to calculate and compare the interest cost over a given period, because that's the real cost you end up paying in case you don't manually overpay every month (which 99% of borrowers won't). Up to you to decide which approach makes more sense to you.
    • getmore4less
    • By getmore4less 15th May 18, 4:32 PM
    • 32,035 Posts
    • 19,222 Thanks
    getmore4less
    @getmore4less, I don't understand where you got your numbers; the payments are not 808 and 795 - I guess you must have made some confusion.
    DOn't think so the calculators and spreadsheet both show.
    217,500 30y @ 2.04% 808.28pm
    217,500 30y @ 1.92% 795.25pm

    @OP, you should be aware that getmore4less likes this approach of making the total payment the same when comparing two mortgages;
    It makes a difference if you don't account for the cash flow properly even more when you start ignoring the fees which can be 1k+

    By using the mortgage rate(making the payments the same) as your initial investment rate it gives the worst case for how you invest your spare money if you have a lower payment.

    Just accounting for the interest gets the wrong answers of what you could be paying when optimised.

    If you want to spend the money then you are not just comparing two mortgages you are also comparing the cost of putting different amounts of money into your mortgage.

    The reality is most decent lenders paying extra is not an issue

    The simple model is if I invest xxx per month on my mortgage which gives me the smallest debt accounting for any fees.

    Makes the comparison very easy with a basic calculator.
    • SouthLondonUser
    • By SouthLondonUser 15th May 18, 5:48 PM
    • 492 Posts
    • 67 Thanks
    SouthLondonUser
    My bad, I had calculated for 25 years, not 30!

    As for the point of comparing two mortgages assuming you pay the same amount every month, look, you won't convince me and I won't convince you (nor do I have the slightest interest in doing so, to be honest!). I was simply pointing out the difference in approach to the OP.

    For example, what I want is to find the cheapest mortgage which meets my needs. The way I budget my finances, every 12 or 18 months I review my finances and then consider whether I can/want to make an overpayment or whether I prefer to use the money in another way (rainy day fund, pension, whatever). This is neither right nor wrong in absolute terms - it is simply how I want to manage my finances. Of course other people will want/need / prefer to do differently.

    Look, all I'm saying is that you should be a little less of a taliban in your approach: you have explained how you make this comparison, you have explained why and why it makes a lot of sense to you, but you should be open to accepting that your approach may not be the best for all (e.g. me), just like mine doesn't suit you.

    Posters on the forum ask for opinions and advice. Just saying: "this is how I compare mortgages" is less useful than saying: "this is how I compare them, this is why I do it this way, but bear in mind that, based on your circumstances, a different approach might make more sense.
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