Don’t just compare the best mortgage rates

Category: Mortgages
Date: 10/7/2011

Mortgage rates are pretty much as low as they've ever been. In September 2011 the average rate for 2 year fixed mortgages was 4.16% - that's the lowest since we at Moneyfacts started gathering information way back in 1988.

The highest mortgage rate we've ever recorded was offered in 1990 at a whopping 16.25%. At that point in time you'd have done well to find a mortgage rate under 15.40%!

Happily mortgage rates are a lot lower now than they were in the early 1990s – in fact Leeds BS have just released a 2 year fixed rate at 1.99%. That's the lowest rate ever.

Compare mortgages on more than just rate

If only choosing a mortgage was as simple as selecting the lowest rate – things would be easier wouldn't they? But unfortunately there's a lot more to it than that.

Take the Leeds BS 1.99% mortgage for instance. Although 1.99% is a fantastic rate for a 2 year fixed – you'll pay £1,999 in set-up fees.

The average set-up fees charged by lenders was £1,023 in September 2011, the same month as we recorded the lowest ever average 2 year fixed rate. To put that into context, in January 2011 the average mortgage set-up fee was £889 – so it's a near 20% increase in just eight months.

Mortgage fees can add significantly to the amount you borrow – as well as the interest you pay. This means that a mortgage with a low rate and a high fee can be less competitive than a higher rate product with more reasonable set-up costs.

Mortgage fees and their effect on your payments

High set up-fees mean that it's more likely you'll have to add them to your mortgage balance. If you do that, interest may be charged on the fee as well. So you could be repaying the set-up fee, together with interest, for the remaining term of your mortgage – potentially over 20 years!

When you compare mortgages it's important you take this into serious consideration. The best way to do this is with a Key Facts Illustration (KFI) – a document that details the important information about your mortgage.

Lenders are required to give you a KFI before you make any mortgage application.

• Make sure that the Key Facts Illustration shows any fees that are to be added to the mortgage amount (you'll find this information in section 3 and 8)
• Compare the monthly repayments in section 6
• Compare the total amount repayable in section 5

You'll then be able to make a more educated decision before deciding what mortgage is best value before making your application.

Find the best mortgage for you - compare mortgages.

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at anytime.