Fooled by mortgage deals

How to find which is really the cheapest mortgage deal

For most people, a mortgage is their single biggest financial commitment. Unless you're running a private jet (in which case, using Pricefilter to find the lowest prices probably isn't your top priority!) your mortgage will almost certainly account for your largest monthly outgoing. So if you want to save money and minimise your expenditure, shopping around for a great mortgage deal is one of the best things you could do.

This is our three-step guide on how to find a winning low-cost mortgage:

1. Don't be fooled by mortgage vendors headline figures

If you're looking at finding a cheap mortgage deal, you need to find out the true cost of the deal. The total cost. The trouble is, most UK mortgage vendors - both banks and building societies that offer mortgages - have a habit of making it really difficult to find out the true cost of a mortgage package.

It's as if they deliberately spread the cost across many different elements of the deal so that they can emphasise the bits that look cheap and hide the bits which aren't such great value somewhere deep in the small print. Most often, mortgage deals focus on that single most respected variable, the mortgage interest rate. Most of us probably get sucked in by it too.

If you and I see a low mortgage rate, say one that's 0.5% below anything else, we think we're onto a winner. Not so fast. Just check out that hefty upfront arrangement fee that accompanies the rock-bottom interest rate and the whole deal probably doesn't look such a bargain anymore. So, make sure you avoid a myopic focus on low mortgage interest rates.

2. Make sure you factor in all costs of a mortgage

So, how do we get to the real total cost? The answer is, you need to make sure you've factored in all the costs associated with the mortgage into your mortgage comparison. Probably the most significant component of this is the interest rate. Realistically, a mortgage that's 2% more than the most competitive rates just isn't going to be the hottest deal, even if it had no other charges whatsoever.

So do a comparison, for example, at Pricefilters mortgage comparison pages and pick the 3 or 4 deals with the best rates.

Now, as we've just seen, the easy mistake to make here would be to just plump for the lowest interest rate mortgage and call it a day. But to make sure we're really getting the best deal, we re going to need to do a little bit more digging. For each of those 3 or 4 deals, check what all the additional costs and fees are.

This is where the banks and building societies start to get sneaky and some of these will only be available in small print on their website. To make it easy for you, here’s a check-list of all the costs to consider. (These are representative of the mortgage fees and costs found in typical low-cost UK mortgages. Other countries mortgage fee structures may differ).

Upfront fees

• Arrangement fees
• Valuation fees
• Legal fees

Exit fees

• Administration fees
• Valuation fees
• Legal fees (Note, some deals offer to pay your upfront legal fees for you but will charge them to you at exit, i.e., if you ever decide to change mortgages. Since the best way to make sure you're always on the best value mortgage is to minimise your mortgage costs over a short period and change mortgages regularly, you should assume that you will have to pay these fees).

3. Compare total mortgage costs over your desired period to find the best deal

To do the final comparison you're going to need to add the sum of all these charges to the total interest that you'll pay over the period that you intend to have this mortgage. This gives will give you the total amount of money that is going down the drain, or more accurately into the banks pockets, during this period.

,p>It's the true cost of the mortgage. To do this, do your mortgage comparison on interest only deals, even if you’re actually going to get a repayment mortgage. The cheapest interest only mortgage will also be the cheapest repayment mortgage, so you can always apply for the repayment version, once you’ve found the rock-bottom price.

We suggest that you switch mortgages regularly. So, say you’re going to go with a mortgage for 2 years. Multiply the total number of monthly payments - in this case 24 - by the interest that you'd pay in a month. Add this to the sum of all the fees that you’ve found against the checklist above and you've got your total cost.Comparing this total cost number across the 3 or 4 deals you’ve selected will let you find the mortgage that's really cheapest. You'll have beaten the sneaky banks and building societies and got yourself the top-notch deal.

A quick note on base-rate tracker deals. While the actual interest rate you pay could change throughout the life of the mortgage, all deals will change by the same amount so comparing at the current rate will still be representative and let you figure out which will be the best deal. If you're looking for a low-cost fixed rate mortgage, the figure you calculate here will be the actual amount you'll pay over the period you have the mortgage.

So, finding which is really the lowest cost mortgage will take a little work, but in the long run there are big bucks at stake and a small time investment now could save you big-time in the years to come.