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True cost of mortgages ‘misunderstood’

True cost of mortgages ‘misunderstood’

Category: Mortgages

Updated: 24/06/2013
First Published: 21/06/2013

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.
Research has revealed that many consumers are unable to work out the true cost of a mortgage.

The study by Which? found that when asked to rank five two-year fixed rate mortgages in order of total cost over two years, which included monthly repayment costs and arrangement fees, 90% of those questioned struggled to rank the products correctly.

Only one in ten (10%) correctly ranked all five mortgage deals, while just a quarter (27%) were able to identify the cheapest and most expensive deals for a £100,000 mortgage, despite half of those surveyed saying they found the test easy.

The study highlights the importance of not only comparing interest rates, but also taking into consideration arrangement fees to work out the total cost of a mortgage.

Depending on how much you plan to borrow and the length of the deal, some people may be better off choosing a mortgage with low arrangement fees and a higher interest rate, while in some instances, it would work out cheaper taking out a product with a lower interest rate, but higher arrangement fee, usually for a higher mortgage advance.

"While it's good to see lenders now offering lower interest rates, mortgage arrangement fees have risen dramatically in the last two years making it increasingly important for borrowers to understand the overall cost," said Which? executive director Richard Lloyd.

"Our research shows that even people who already have a mortgage struggle to recognise the cheapest deal."

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