mortgage deal

Why The Best Mortgage Rate Is Not Always The Best Deal!

If you’re new to mortgages or even if you are looking to remortgage you will know that mortgages deals can be confusing. The array of deals on offer all seem to have so many different features. I’m not going to talk in depth in this article about every type of deal available, instead i’m going to show you one simple thing to look out for on mortgage deals that could save you £1000s!

Why The Best Mortgage Rate Is Not Always The Best Deal!

One of the simplest things you can quickly check when comparing mortgages is the setup fee. We’ve all had it drilled into our minds to always look for the best rate! With mortages however the best rate is not always the best deal. Mortgage lenders generally charge fees to set up your mortgage. I want you to look at the next two mortgage deals and tell me which one is the best deal!

Deal 1 ~ 2 year Fixed Rate Mortgage at 3.49% with a setup fee of £399

Deal 2 ~ 2 year Fixed Rate Mortgage at 2.99% with a setup fee of £2999

As we said earlier most people will look only at the rate and it’s not always their fault! Next time you walk past a bank or see an advert for a mortgage deal in the newspaper you will see that the rate is very prominent but the fee less so! This is not coincidence, it’s deliberate!

If you are one of those people that only looks at the rate you would likely say that deal 2 was the better deal. Let’s see how much you would pay if you had a £100,000 mortgage and kept the mortgage for two years!

Deal 2 ~ You would pay £5980 in interest but once you include the £2999 setup fee you would actually pay £8979!

You can see that after you take into consideration the setup fee you’re paying a lot more than you think. Compare this to Deal 1 with the higher rate!

Deal 1 ~ Over the 2 year fixed period you would pay £6980 in interest plus the £399 setup fee meaning you pay £7379!

So by choosing the deal with the higher rate you’ve actually saved £1600 over the 2 years because the set up fee was so much cheaper!

I hope this helps you to save £1000’s on your next mortgage deal.

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Note : If you have a much bigger mortgage the lower rate deal may well work out better for you, so be sure to do the maths!

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