Compare two mortgage deals
A lower rate with a big fee against a higher rate with no fee. Which one actually costs less depends on how much you are borrowing and how long the deal lasts, and the headline rate alone will not tell you. Put both offers in and see.
Your mortgage
Deal A
Deal B
Your result
Why the headline rate is not the answer
A fee is a fixed amount, so it hurts a small mortgage far more than a large one in proportional terms. A rate difference, by contrast, scales with the size of the loan. That is why a deal with a £1,999 fee and a lower rate can be excellent on a £400,000 mortgage and poor on a £120,000 one, with the same two products.
Comparing monthly payments alone misses this entirely, and comparing rates alone misses it twice over, because a lower rate also repays capital slightly faster, leaving you owing less at the end.
How this is worked out
Both deals start from the same borrowing requirement, run for the same period, and are measured on the same thing: everything you hand over, plus everything you still owe at the end.
true cost = payments made over the period
+ fee, if you paid it up front
+ balance still owed at the end
The lower true cost is the better deal, whatever the headline rate.
Counting the remaining balance is the part most comparisons skip. Without it, a deal can look cheaper simply because it repaid less capital, which is not a saving at all, just money still owed.
A worked example
Borrowing £250,000 over 25 years, comparing over a 5 year fix. Deal A is 3.9% with a £1,999 fee added to the loan. Deal B is 4.3% with no fee.
Deal A costs about £45 a month less, and once the remaining balance is counted, works out roughly £2,500 better over the five years. The fee is real money, but the rate difference outweighs it comfortably at this loan size. Drop the loan to around £120,000 and the two deals draw level; below that, the fee-free deal wins.
Adding the fee to the loan is not free
Most lenders let you add the product fee to the mortgage rather than paying it on completion. It helps with cash flow at the point of purchase, but you then pay interest on it, and not just for the fixed period. Unless you overpay it off, the fee sits in the balance for the remaining term.
What this assumes
- Both deals are repayment mortgages on the same loan amount and the same overall term.
- Each rate applies for the whole comparison period. If you compare over longer than a deal's fixed period, the real cost would be different, because the rate would revert.
- No overpayments, no missed payments, and no early repayment charges.
- Fees beyond the product fee, such as valuation or legal costs, are not included. Add them yourself if they differ between the two offers.
- Cashback or incentives offered with a deal are not counted. Subtract any cashback from that deal's fee before entering it.
Where this stops being reliable
This compares the two sets of figures you enter, nothing more. It does not know which deals you would be accepted for, does not search the market, and cannot judge a lender's service or flexibility on overpayments, which may matter more than a few hundred pounds. Check the figures against the actual illustration each lender gives you before deciding.