comparison between mortgages - HotUKDeals
We use cookie files to improve site functionality and personalisation. By continuing to use HotUKDeals, you accept our cookie and privacy policy.
Get the HotUKDeals app free at Google Play

Search Error

An error occurred when searching, please try again!

Login / Sign UpSubmit

comparison between mortgages

£0.00 @
I am planning to apply for one of Santander mortgages for £220,000. There are two options (both are fixed rates for 2 years): Option 1: 1.34% with £999 fees (added to the loan), then 4.49% SVR. Op… Read More
AstalaVista Avatar
1m, 1w agoPosted 1 month, 1 week ago
I am planning to apply for one of Santander mortgages for £220,000.

There are two options (both are fixed rates for 2 years):
Option 1: 1.34% with £999 fees (added to the loan), then 4.49% SVR.
Option 2: 1.64% with no fees, then 4.49% SVR.

As per moneysavingexpert comparison results, I get the following figures:
Option 1: Monthly 'fixed' payment is £746 with a cost over 2 years of £17,905 (Remaining mortgage at end of 2 years: £208,869)
Option 2: Monthly 'fixed' payment is £774 with a cost over 2 years of £18,573 (Remaining mortgage at end of 2 years: £208,452)

So which option is really better over the two years? The first option where I pay less but the remaining mortgage is higher or the second option where I pay more but the mortgage remaining is less?
Tags:
AstalaVista Avatar
1m, 1w agoPosted 1 month, 1 week ago
Options
Best Answer
option 2 - £668 More in payments over the two years but you didn't have to pay the £999 and balance outstanding is less after two years too..

All Responses

(9) Jump to unreadPost an answer
Responses/page:
#1
option 2 - £668 More in payments over the two years but you didn't have to pay the £999 and balance outstanding is less after two years too..
#2
Agree, don't understand what the benefits of deals with fees are?!?
#3
if the difference in interest rates was greater then due to the amount of mortgage you're taking it may have been 'cost effective'. another factor to take into account is whether you would be adding the fee on or paying it up front. adding it on means you pay interest for however long you have the mortgage for. in this case as there is only 0.3% difference then it doesn't make it cost effective so option 2 is better.

benefits of fee paying deals is that they offer a lower rate of interest, if you have a large mortgage, pay it up front and the deal is longer (say 5yr fixed) it can potentially save thousands.
#4
As the above answer. There will be a break even point when option 1 will be more attractive than option 2as the loan amount increases.
#5
Many thanks for your responses. Option 2 it is.
#6
hi guys, just trying to understand this...

I would have assumed that option 1 is the better deal; over the 2 years you would pay £28/month less, resulting in the cost over the 2 yr term being £668 less. On the other side (remaining mortgage balance), you owe £417 MORE. Given that you pay less over the term than you owe back, wouldn't option 1 be cheaper by £251 over the 2 years?

Is my logic flawed here? Not trying to be obstructive, just want to know where I'm going wrong!

Thanks
#7
ardypats
hi guys, just trying to understand this...
I would have assumed that option 1 is the better deal; over the 2 years you would pay £28/month less, resulting in the cost over the 2 yr term being £668 less. On the other side (remaining mortgage balance), you owe £417 MORE. Given that you pay less over the term than you owe back, wouldn't option 1 be cheaper by £251 over the 2 years?
Is my logic flawed here? Not trying to be obstructive, just want to know where I'm going wrong!
Thanks

It is a perfectly valid question, as I too initially thought that option 1 will be cheaper.
First of all the mortgage interest is not a straight forward simple calculation.
I think it is called amortization with scheduled payments(using a formula), where the amount of each payment applied towards principal grows while the amount of accrued interest decreases over time. So initially higher amount goes towards interest (lower towards principal) and later on lower towards interest (higher towards principal).

To keep things simple, if we were to take out the fee from the equation then obviously option 1 would be better. However adding the fee separately with its approx interest (999 for 2 years at 1.34% gives a total of approx £1026 with interest) paid over 2 years. Now if we were to add that to the figures then:
Option 1: Monthly 'fixed' payment is £743 + £43 with a cost over 2 years of £18,850 (Remaining mortgage at end of 2 years: ££207,925)
Option 2: Monthly 'fixed' payment is £774 with a cost over 2 years of £18,573 (Remaining mortgage at end of 2 years: £208,452)

I do not know the exact formula but the following spreadsheet may help if you are willing to explore further.
#8
In order to further clarify and help anyone who may be in a similar situation below is what I concluded:

For the two options to be compared fairly/like for like, we have to consider the fees over a two year period and not over the whole life of mortgage. So we can first calculate figures for the two options (i.e. without fees) and then add the fee separately to option 1 as if we are paying the fee over a two year period (along with interest).
All in all when I calculated I found option 1 to be £267 worse off.

Edited By: AstalaVista on Jun 15, 2017 09:25
#9
have you got the esis?

Post an Answer

You don't need an account to leave a response. Just enter your email address. We'll keep it private.

...OR log in with your social account

...OR comment using your social account

Thanks for your comment! Keep it up!
We just need to have a quick look and it will be live soon.
The community is happy to hear your opinion! Keep contributing!