Beware: the lowest mortgage rate isn’t necessarily the cheapest deal

27th October 2015


Borrowers have been warned that opting for the lowest rate mortgage without considering the impact of fees could prove a costly mistake.

Analysis by, the price comparison website, shows that many borrowers would actually be better off choosing a deal with no arrangement fee over a lower rate alternative.

Charlotte Nelson, finance expert at the price comparison website, says: “While these low rate deals look great on paper they are often accompanied by high fees that can scare even the most seasoned borrower. With fees on mortgages ranging from nothing up to £2,794, with the average sitting at £939, it is easy to see why opting for the wrong deal can be a costly mistake.

“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. For example, opting for the lowest two-year fixed rate mortgage at 60% loan-to-value with no fee (currently HSBC’s 1.89% deal) will mean borrowers will be around £1,500 better off in the first year than if they chose the lowest overall rate, which comes with a hefty £1,995 fee.” 



Rate Details


True cost in first  year

Lowest Two-Year Fixed Rate at 60% LTV

Post Office Money®

1.15% Fixed to 31/12/2017



Lowest Two-Year Fixed Rate at 60% LTV – with no fee


1.89% Fixed to 31/12/2017






Nelson adds: “Arrangement fees give providers greater flexibility over the rates they offer, but the cost of arranging a mortgage does not differ greatly between deals, which should lead consumers to question what this fee is actually for.

“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.

“There are deals out there that have no arrangement fees, so borrowers will have to decide whether they want a trick or a treat when they come to choosing a mortgage.”

Check out Mindful Money’s mortgage calculators to see how you can find the best deal. 

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