Cheap mortgage rates not always as good as they seem Go compare with our comparison table

Cheap mortgage rates not always as good as they seem

29 September 2010 / by Rachael Stiles

Borrowers who only consider the headline rate when comparing mortgages could be making a mistake by not considering the other costs, warns moneysupermarket.com.

Some cheap mortgage rates might be attention grabbing and seem like the best deal, but the comparison website urges borrowers to look beyond the interest rate and take other costs into consideration before applying, such as arrangement fees.

Not looking at how much the arrangement fee is could negate the benefits of a cheaper rate, and another mortgage with a higher rate might have ended up being a better deal overall.

Arrangement fees can vary drastically, with some lenders not charging one at all and others charging several thousand pounds, which can really add to the total cost of the mortgage.

Commenting, Clare Francis, site editor at moneysupermarket.com, said: "When it comes to looking for a mortgage, borrowers mustn't be blinded by attractive looking headline rates. It's vital to factor in the impact of the arrangement fees as these charges often mean a deal isn't quite as good as it first appears.

Lenders will sometimes charge high fees to enable them to offer very competitive rates, without losing out on profit, Ms Francis said, and while some mortgage fees might still be worth paying, it pays to compare the bigger picture.

She also advises that mortgages where the product fee is a percentage of the loan, especially on large value mortgages, "rarely prove to offer best value."

She added: "The key when looking around for a mortgage is to calculate the total cost over the term of the deal - it's the only way for a borrower to identify which product will be best value for their circumstances."

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