Fee or no fee? How to tell which mortgage deal is cheaper

Many lenders offer the same deal twice: a lower rate with a product fee, or a slightly higher rate with no fee. Which is cheaper depends mostly on the size of your loan and how long the deal lasts.

Compare the total cost, not the rate

Add up what you'll actually pay during the deal: every monthly payment for the deal period, plus the fee. The lower total wins.

A worked example

A £150,000 repayment mortgage over 25 years, comparing two 2-year deals:

• Deal A: 4.20% with a £999 fee — about £808 a month, or £20,401 over two years including the fee.
• Deal B: 4.50% with no fee — about £834 a month, or £20,010 over two years.

Deal B, the higher rate, is about £390 cheaper. The 0.30% saving on Deal A only outweighs a £999 fee on a 2-year deal once the loan is roughly £245,000 or more. On a smaller loan — say £100,000 — the no-fee deal wins by nearly £600.

(This simplified comparison looks at payments and fees only. A lower rate also clears a little more of the balance, and adding the fee to the loan means paying interest on it.)

Rules of thumb

• Smaller loans usually favour no-fee deals; larger loans often favour a fee.
• Longer deals spread a fee over more years, so a fee works harder on a 5-year fix than a 2-year one.
• Check whether the fee is a flat amount or a percentage of the loan — percentage fees are common on buy-to-let.

Our comparison tool does this sum for you — enter your loan and it ranks deals by true cost over the deal, fees included. You can also browse today's no-fee deals.

Figures are illustrative, calculated on a standard repayment basis. This is general information, not mortgage advice.