Mortgage comparisons

July 2, 2010 · Posted in Money, Property 

Mortgage Comparison screenshotLast year I needed to look around for a new mortgage. Fixed rates were almost at an all-time low† and, worried about the unprecedentedly dovish position the MPC had adopted, I wanted to protect against the higher interest rates that inflation may bring. Let’s face it, at some point interest rates have to rise and it looks like the hawks are finally now getting concerned about several months of above-target inflation.

In order to compare the features of the many and various mortgage deals available at the time, I decided that it would be useful to create a mortgage comparison spreadsheet, which you are welcome to use if you’re in a similar situation. It’s probably best if I explain the background and how it works before you dive in and use it.

The main thing I wanted to calculate for each mortgage deal was the total charges for a given fixed period (or ‘term’, which must be the same for each deal in order to compare fairly). By ‘charges’ here I mean the sum of the set-up fees plus any interest component of the repayments made over the term. After all, this is the price you are paying to the lender in return for borrowing their money. For my comparisons I ignored any other fees (such as legal, valuation and exit fees) as these were all quite similar for each deal. If you need to include them, you could add them to the set-up fees cells††.

Let’s take the examples in the spreadsheet to illustrate how the set-up fees and interest rate affect the overall charges. In Illustration 1, the rate is 3.99% and the overall charges are £19,702.99. In Illustration 2, the rate is higher and the fees are less, but overall it’s a more expensive deal at £19,844.95. Finally in Illustration 3, which has the highest rate at 4.24% but the lowest fees, the total charges are the lowest at £19,340.89.

If you’d like to compare deals yourself, you can just enter the relevant information in the yellow input boxes†††. Have a play around with different inputs and, as always, I’m really interested to hear how you get on.

To make changes you need to press the ‘Click to Edit’ button. You’ll probably find it easier to click ‘Full Screen View’ too:

If, for some reason, this online version doesn’t work for you, there is also an Excel version here too.

† As an aside, I was interested to find out the lowest rate ever (in the UK) for a 5-year fixed rate mortgage and initiated this thread on the MoneySavingExpert forum. The lowest anyone came up with was 3.99%, but I’ve since found this reference to one at 3.89%. Obviously the set-up fees make a big difference to the overall ‘value’ of the deal, but 3.89% is pretty amazing for a fix over that time period. Please comment if you’ve any evidence of a lower rate though.

UPDATE 6 Feb 2012: the lowest rate I have now heard of is just 3.19% from Chelsea Building Society (with a £1495 arrangement fee)! Surely this can’t go any lower?

UPDATE 22 June 2013: 5-year fixed rates continue to amaze me, in what looks like a long-term low-interest environment. I read today that Yorkshire building society has cut its five-year fix to 2.44%, available up to 65% loan-to-value (LTV) with a £1,475 fee.

†† For simplicity I’m ignoring net present value calculations on payments to be made in the future. It’s not really needed here as long as the term is the same for each deal. However if you were to compare any exit fees by adding them to the initial fee, you’d need to discount back accordingly. Incidentally, for similar reasons, you should never opt to have the fees added to loan the loan if you can afford to pay it up front as you’ll end up paying interest (which could end up being substantial) on the fees over the course of the mortgage.
The mortgage repayments in my spreadsheet may not match those used in your Key Features documents as the calculation method can be slightly different depending on the provider. The method I’ve used matches that used by Abbey (now Santander) and is explained here. For more details on formulae behind the numbers, please comment below and I’ll get back to you.

††† If you only have two deals to compare it will still work but just note that the cell showing <Lowest in red may not be against the correct deal.

Comments

2 Responses to “Mortgage comparisons”

  1. admin on August 24th, 2010 09:32

    Hopefully the following view will be seen as a bit extreme in a few years time, but it goes to show that it’s worth considering what will happen to your mortgage after the fixed rate ends:
    http://www.telegraph.co.uk/finance/personalfinance/7960378/Mortgage-rates-may-hit-14pc-within-two-years.html
    Might be best to get that low rate fix now while you still can?

  2. spinage on July 4th, 2011 14:40

    I’ve just spotted another 5-year fix at 3.89% (£999 fee):
    http://www.ft.com/cms/s/2/4dc79d84-a302-11e0-a9a4-00144feabdc0.html#axzz1R8fqFyiH