Low fees may disguise high pay back in the long term

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Mortgage customers who are seduced by low interest rates could find that they end up paying more for their borrowing than necessary, according to research by finance website MoneySupermarket.com

Fixed and tracker mortgage products have increased in cost by more than 20 per cent since September 2009, which makes it more difficult for borrowers to compare the true cost of their mortgages, according to the website.

Products with the lowest headline rates do not necessarily offer the best value over the long term once fees are factored in, it says, adding that a product with a slightly higher rate, but lower set-up costs may prove to be cheaper.

Mortgage expert at MoneySupermarket.com, Clare Francis said: “Fee costs can vary greatly between providers so taking the time to work out the total amount you have to repay over the term of the offer is essential.

“That said, for some people it may be worth paying a high fee. On large mortgages a high fee can be worth paying to secure a low rate. However, with smaller mortgages where a high fee will form a larger proportion of the overall loan size, it may work out cheaper to keep the set-up costs low, even if it means paying a slightly higher monthly payment.

“When comparing mortgages you should always look at the total amount you would repay, including fees, over the term of the deal.

“Think about whether you want a fixed or variable rate deal, and if you do opt for a variable rate mortgage you need to ensure that you will be able to afford your monthly repayments if and when interest rates rise as they won’t stay at this level forever.”