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Borrowers urged to calculate true cost of mortgages

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Mortgage deals with market-leading interest rates may be the more expensive option once fees are factored in, according to analysis by MoneySuperMarket.

The comparison site found that many mortgage deals with low interest rates were subject to high booking and arrangement fees, pushing the overall cost higher. For example the lowest fixed mortgage rate is a two-year deal from HSBC at 1.59 per cent at 40 per cent loan to value (LTV) or more. With a combined booking and arrangement fee of £1,999 someone borrowing £150,000 over 25 years would repay £16,543.

By comparison, a two-year fixed mortgage from the Post Office available up to 75 per cent LTV with fees of £995 would be £332 less despite a higher rate of 1.98 per cent.

According to Clare Francis, editor in chief of MoneySuperMarket, these figures do away with the myth that the best mortgage deals are only available to borrowers with large deposits.

She said: “Those with big deposits are still being enticed by ultra-low rates, but huge arrangement fees mean that seemingly cheap mortgages aren’t always quite as good as they appear to be. When comparing mortgages it’s crucial to factor in the fee and not just go for the product with the lowest rate.”

Case and point is Cumberland Building Society’s 70 per cent LTV two year fixed rate mortgage, with a relatively high rate of 2.08 but a fee of just £699. The true cost of borrowing £150,000 from Cumberland is a full £436 cheaper than the HSBC mortgage.

Francis continued: “In some cases it can be worth paying a high fee in order to secure the lowest possible rate but this depends on the amount you are looking to borrow – the larger the loan, the less of an impact the fee has. The only way to work out what is the best mortgage for you is to calculate the total amount you’ll pay over the term of the deal. It is well worth taking the time to do whenever you are looking for a new mortgage as it could save you hundreds of pounds.”

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