Best Mortgage Options

[Oggie]

OK, I pretty much suck at maths and am slowly giving myself a headache considering all the different mortgage options that are available, thankfully there are far less products on the market than 12 months ago else I think my head would have melted.

Anyways, I plan to be applying for a mortgage of around 40K and am trying to figure out what the cheapest option is going to be in terms of set up fees against interest rates.

From what I can see the higher arrangement fee you pay the better the interest rate you can get, but what I can't seem to figure out is with the amount I plan to borrow am I better off to pay a smaller set up fee and accept a slightly higher rate of interest?

I have managed to bash out the following on Excel but would really appreciate if anyone can advise if the process I have gone through to work this out is correct or, as I suspect hideously flawed.

Basically I have used http://www.bbc.co.uk/homes/property/mortgagecalculator.shtml and entered the various interest rates then using the interest only figure calculated the total I would pay back over 24 months (the term of most of the fixed rate mortgages).. Anyway I have come up with this:

http://www.defstar.org/images/mtgage.jpg

Does this seem like a sound method?

[Mr Nice]

Numbers seem about right. Over a 2 year period, the difference between money paid up front (fees) and money paid over time doesn't mean so much.
Unfortunately that HSBC deal has been bumpled to a +1.64% tracker, so the choice between the short term fix (Principality) and the long term tracker (HSBC) stops being so interesting.

[cjanderson]

I'd do lifetime with this low a mortgage, as all those arrangement fees would swamp the savings in interest.

so work it out on a 10 year basis (moving from one similar fixed rate to another each 2 years plus fees) versus a 10 year lifetime rate (or however long you plan to keep it)

Each mortgage re-arranged would probably also have legal fees and £75 chaps or deeds fees.

[Oggie]

Thanks for the replies CJ and Mr Nice, it looks as though I'm thinking along the right lines anyway.

CJ do you mean find a mortgage with a fixed rate for the life of the mortgage? I'm probably looking at taking this out initially over 20 - 25 years then probably reducing that to 10 - 15 after the first couple of years, this would leave me with a bit of spare cash initially for furniture etc. I'm a first time buyer and will be moving from a life living in one bed flats!

[cjanderson]

fixed rate for life or a tracker for life. Depends on your available income and attitude to risk.

40k is very low amount to borrow so interest will be low anyway compared to £1000 fees. only need £1000 every 2 years and you'd have paid 10k just in fees after 20 years, could have been used to pay off the mortgage much much earlier :D