How to Compare Mortgage Deals Properly

Why Headline Rates Can Be Misleading

A mortgage with a 3.5% rate and a £999 arrangement fee could cost you more overall than one at 3.7% with no fee. The headline rate gets the attention, but the total cost of the deal — including all fees and charges — is what actually matters to your wallet.

Lenders know that consumers compare rates, so some offer artificially low rates offset by high fees. This can be a good deal if you're borrowing a large amount (where the rate saving outweighs the fee) but poor value for smaller mortgages where the fee represents a larger proportion of the savings.

Calculating the True Cost of a Mortgage Deal

To compare deals accurately, calculate the total cost over the product period. For each deal, add up:

• The total monthly payments over the fixed or deal period
• The arrangement or product fee (whether paid upfront or added to the loan)
• Any valuation fee charged
• Any legal fees not covered by the lender
• Any cashback received (subtract this)

This gives you the true cost of each deal over the product period. The deal with the lowest total cost is the one that saves you the most money, regardless of which has the lowest headline rate. Many comparison websites now show a 'total cost' figure, which makes this comparison easier.

Key Features to Compare Beyond Cost

Cost isn't the only factor. Consider these features when comparing deals:

• Overpayment allowance: Most lenders allow 10% per year, but some are more generous or restrictive
• Early repayment charges: Check the ERC structure if there's any chance you might need to exit the deal early
• Portability: Can you take the mortgage with you if you move house?
• Flexibility: Can you take payment holidays or make underpayments in hardship?
• Rate type after the deal ends: What SVR will you fall onto, and can you product transfer easily?

These features matter because life is unpredictable. The cheapest deal might not be the best if it locks you in with harsh penalties or doesn't allow overpayments when you have spare cash.

Using APRC and Other Comparison Tools

The Annual Percentage Rate of Charge (APRC) was designed to help borrowers compare mortgage costs. It factors in fees and shows what the deal would cost over the entire mortgage term, including the period after the initial deal ends when you'd be on the SVR.

However, APRC has significant limitations. Almost nobody stays on the SVR for the remaining term — most people remortgage. This makes the APRC figure somewhat misleading. A more practical approach is to compare the total cost over just the product period (for example, two or five years), as this reflects what you'll actually pay before you switch again.