How to Compare Mortgage Deals

Summary

Comparing mortgage deals means looking beyond the headline interest rate. Two deals with different rates and fee structures can produce very different total costs over the life of the mortgage. The right comparison accounts for the interest rate, the term, the arrangement fee, and whether that fee is paid upfront or added to the loan.

How it works

When you compare two mortgage deals, the key metric is total cost — the total amount you will pay over the full term, including both interest and fees.

Three factors drive total cost:

1. Interest rate — a lower rate means lower monthly payments and less interest over the term
2. Arrangement fee — the lender’s product fee, typically £0–£2,000. A fee-free deal may carry a slightly higher rate.
3. Fee handling — if you add the fee to your loan, you pay interest on it for the entire term, making it significantly more expensive than paying upfront

The calculator computes the monthly payment and total cost for each deal side by side, then highlights which deal is cheaper overall.

Why headline rate isn’t enough

A deal at 4.0% with a £1,999 fee can be cheaper than a deal at 4.5% with a £999 fee — but only if you keep the mortgage long enough. For short initial periods (2–3 year fixes), the fee has a larger impact relative to the interest saving. For the full term, the rate dominates.

APRC — the official comparison metric

Lenders are required by the FCA to show the Annual Percentage Rate of Charge (APRC), which folds all fees into a single annualised rate. However, APRC assumes you keep the mortgage for the entire term at the follow-on rate — most people remortgage before that, so APRC can be misleading. Comparing total cost over the initial deal period is often more practical.

The formula

Fee handling

• Pay upfront: Total cost = (monthly payment × months) + arrangement fee
• Add to loan: The fee is included in P, so you pay interest on it for the full term. Total cost = monthly payment × months (fee is already baked into the payments)

Adding a £999 fee to a 25-year loan at 4.5% costs roughly £1,665 in total (the fee itself plus £666 in extra interest). Paying it upfront costs exactly £999.

Worked example

Inputs explained

• Property price — the agreed purchase price
• Deposit — your cash contribution; the loan is the difference
• Interest rate (Deal A / Deal B) — the annual interest rate for each deal
• Term (Deal A / Deal B) — how long the mortgage runs, in years
• Arrangement fee (Deal A / Deal B) — the lender’s product fee
• Fee handling (Deal A / Deal B) — whether the fee is paid upfront at completion or added to the loan balance

Outputs explained

• Monthly payment — the fixed monthly repayment for each deal
• Total interest — how much interest you pay over the full term
• Total cost — total repayable plus any upfront fees. This is the number that matters for comparison.
• Saving — how much cheaper the winning deal is

Assumptions & limitations

• The comparison assumes both deals run for their full term at a fixed rate. In practice, most UK mortgages have a 2–5 year fixed period followed by the lender’s Standard Variable Rate (SVR). If you plan to remortgage when the fix ends, the comparison is most useful over the initial fixed period rather than the full term.
• The calculator uses repayment mortgages only. Interest-only mortgages have a different cost profile (lower monthly payments, but the capital must be repaid at the end).
• Fees added to the loan accrue interest at the same rate as the mortgage — some lenders may treat fees differently.
• The comparison does not include other costs such as valuation fees, legal fees, or early repayment charges from an existing mortgage.

Verification

Accounting identity: Total cost = total interest + loan amount + upfront fees (if any). For fee-added-to-loan deals, total cost = total repayable (because the fee is already in the loan).