We'd like to remind Forumites to please avoid political debate on the Forum... Read More »
📨 Have you signed up to the Forum's new Email Digest yet? Get a selection of trending threads sent straight to your inbox daily, weekly or monthly!
what is 'overall cost for comparison'
Options

danlightbulb
Posts: 946 Forumite


Hi all,
I'm looking in the best buy tables on L&C mortgages for some options.
In the columns they list the lowest interest rate first, but often the lowest interest rate has the highest 'overall cost for comparision'. I beleive this is due to fees bumping up the APR???
Should I be looking for a mortgage with a low rate / high APR, or one that has a higher rate but a lower APR?
Also, if i'm spreading the fee out over the mortgage term, should I be bothered about the fee and just go for the lowest rate?
Thanks
I'm looking in the best buy tables on L&C mortgages for some options.
In the columns they list the lowest interest rate first, but often the lowest interest rate has the highest 'overall cost for comparision'. I beleive this is due to fees bumping up the APR???
Should I be looking for a mortgage with a low rate / high APR, or one that has a higher rate but a lower APR?
Also, if i'm spreading the fee out over the mortgage term, should I be bothered about the fee and just go for the lowest rate?
Thanks
0
Comments
-
Come on moneysavers!0
-
danlightbulb wrote:In the columns they list the lowest interest rate first, but often the lowest interest rate has the highest 'overall cost for comparision'. I beleive this is due to fees bumping up the APR???
Basically, yes. Too lazy to type it all out again so will just post a link to my previous answer to a similar thread in the past.
http://forums.moneysavingexpert.com/showthread.html?t=161027danlightbulb wrote:Should I be looking for a mortgage with a low rate / high APR, or one that has a higher rate but a lower APR?
Ahh, now there's the rub.
The overall cost for comparison assumes that you will stay with that lender for the life of your mortgage (possibly 25 years plus) and pay their standard variable rate after the deal ends (which can be as soon as 2 years into that 25 years). For that reason, it can be a bit pointless using the overall cost for comparison to compare 2 year deals as you will, in theory, switch to another deal at the end of 2 years rather than pay the lender's standard rate.
For that reason, you have to ensure that you are comparing like for like and do a comparison over the deal term. ie if you are looking at 5 year deals, find out what the total cost over 5 years is.
http://www.moneyfacts.co.uk/searches/default.aspx allows you to do this.
After putting in the basic details of the mortgage you require, at the bottom of the Mortgage Search page click 'Ask me more'. On the next page select the deal period you are looking for (2, 3, 5 years etc) and then set the initial display order to 'True Cost' and ensure that the 'True cost period' matches the deal period you hve selected. ie If you want to compare 2 year fixed rates, set the deal period to 2 years and the true cost period to 2 years.
The table you then get will show the deals available ordered by the true cost over the deal period whcih should be your first point of reference.
If you are looking at, say, 5 year fixed rates and have 2 deals with similar costs over 5 years, it could be then worth looking to see which has the lower over all cost for comparison as this will show which has the lowest long term cost in case you are unable to remortgage for whatever reason.
Generally though you are are better working off the cost over deal period. If you are never going to change mortgage, look at the overall cost for comparison.danlightbulb wrote:Also, if i'm spreading the fee out over the mortgage term, should I be bothered about the fee and just go for the lowest rate?
No, go for the lowest cost over deal period as this takes into account the total cost allowing for the interest rate payable, the fees payable to set it up and the fees payable to repay it early.
hope this helpsI am an IFA (and boss o' t'swings idst)You should note that this site doesn't check my status as an IFA, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.0
This discussion has been closed.
Confirm your email address to Create Threads and Reply

Categories
- All Categories
- 351K Banking & Borrowing
- 253.1K Reduce Debt & Boost Income
- 453.6K Spending & Discounts
- 244.1K Work, Benefits & Business
- 599K Mortgages, Homes & Bills
- 177K Life & Family
- 257.4K Travel & Transport
- 1.5M Hobbies & Leisure
- 16.1K Discuss & Feedback
- 37.6K Read-Only Boards