With such a vast array of choice when it comes to looking for a mortgage, it is unsurprising that many opt for the lowest rate to save money.
But sometimes things can be too good to be true, experts say. While rates have fallen in recent years, stealth fees have actually increased, meaning that borrowers could actually be worse off with a lower rate alternative.
According to data from comparison site Moneyfacts.co.uk, the Post Office has a mortgage at a fixed rate of 1.15% for two years. With fees of £1995, the true cost on a £200,000 mortgage would be £7,520.28 for the first year.
To compare, HSBC’s fixed rate mortgage at 1.89% with no fee has a true cost of £6,026.64, a saving of £1,493.64 in the first year on the same mortgage.
Chelsea Building Society’s lowest two-year fix is 1.39% with fees totalling £1675. Home owners with a mortgage of £200,000 would pay £8,781.16 in the first year for a £200,000 property.
However, borrowers could save £1,291.24 by opting for a 1.84% fix with Norwich and Peterbrough.
Charlotte Nelson, Finance Expert at Moneyfacts.co.uk, said: “While these low rate deals look great on paper they are often accompanied by high fees that can scare even the most seasoned borrower.
“The low rate high fee favours those borrowers looking purchase properties at the high end of the housing ladder. However, large fees can turn what appears to be a cheap deal into an expensive one.
“Borrowers choosing a two-year fixed rate will find the size of the arrangement fee particularly important, as the short-term nature of the deal means that borrowers will have to remortgage relatively soon, which could see them paying out yet another hefty fee.
“Looking for a mortgage can often be a torturous process as there are so many costs that affect the overall price. However, borrowers need to ensure that they are not swayed by a low headline rate and instead work out the true cost of the loan.”
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