According to Moneysupermarket.com, the lowest headline mortgage rates are not necessarily the best value over the term of the deal.
It found that once fees are factored in, a product with a slightly higher rate but lower set-up costs may actually prove cheaper.
A borrower could expect to save around £1,100 by looking beyond headline rates.
Dean Mason, principal of Mason’s financial planning said that most clients are confortable paying £1,000 in fees.
“There is a psychological limit with borrowers and generally you’ll find that if the fees are above £1,000, than the client will consider other deals on the market. If the product fee hits £1,200, than borrowers are likely to start asking questions.”
Moneysupermarket.com said the lowest two-year fixed rate is from Santander at 2.79%, however, this includes a combined booking and arrangement fee of £1,995.
This means that the total amount to be paid back over the two years for someone borrowing £150,000 is £18,676.
The same amount borrowed over two years with Royal Bank of Scotland at a rate of 2.99% and a fee of only £499, would cost £17,552 – a saving of £1,124 over the two year period.
Clare Francis, mortgage spokesperson at moneysupermarket.com said that it’s vital for borrowers to take into account arrangement and booking fees as part of the overall cost.
“The size of the fees can vary greatly, with some providers offering fee-free deals while the set-up costs on other mortgages can run into thousands. It is therefore vital to work out the total amount you’d repay over the term of the offer.
“That said, for some people it may be worth paying a high fee in order to benefit from the lowest interest rate. It will all depend on the amount you are looking to borrow – on large mortgages a high fee can be worth paying in order to secure a low rate.”
She added that with smaller mortgages, where a high fee will form a larger proportion of the overall loan size, it could work out cheaper to keep the set up costs low even if it means paying a slightly higher monthly payment.
