How to do a true cost calculation on a mortgage

When comparing mortgage deals, especially when deciding whether to pay or add a product fee to mortgage, it’s essential to work out the true cost. This means looking beyond just the interest rate or monthly repayment and calculating the total amount you’ll pay over the initial deal period (such as a 2-year or 5-year fixed rate).

• Work out the total monthly repayments: calculate your monthly mortgage payment based on the interest rate and loan amount. If you’re adding the product fee to your mortgage, include that in the loan total.
• Multiply by the number of months in the deal: multiply your monthly repayment by the number of months in your fixed or discounted term (e.g., 24 months for a 2-year fixed deal).
• Add the product fee: if you are paying the product fee upfront, simply add it to your total cost once. If you add the product fee to the mortgage, remember that you’re paying interest on it. Include the extra cost of interest over the fixed term based on your repayment amount.
• Include any other fees: some mortgages come with valuation fees, arrangement fees, or early repayment charges. If these apply, add them into your calculation.
• Compare the total cost: now, compare the total cost of each mortgage deal over the same period, including both monthly payments and fees, to see which option is genuinely cheaper.

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