Deals with extended penalties rarely work out cheaper in the long run.
Here are a couple of examples to show you what we mean.
Which deal looks better?
Assuming you wanted to borrow £100,000 over 25 years on a repayment (also called a capital and interest) basis, which deal is the most attractive?
• Deal A
An interest rate of 2 per cent fixed for the first year, followed by four years tied to the lender's standard variable rate (SVR), or
• Deal B
An interest rate of 5.5 per cent fixed for five years?
Deal A looks like a winner, doesn't it? But is it really?
What if we told you that the lender's standard variable rate (SVR) for Deal A is 7.5 per cent and that it comes with a £2,000 set-up fee, while with Deal B there is a £400 set-up fee?
You might still guess Deal A would be cheaper over five years, but in fact
Assuming the SVR for Deal A doesn't change, over five years it would cost you almost £5,000 more than Deal B!
You don't need to be a mathematical genius to do similar sums to compare the deals you're considering just punch the figures into our mortgage cost calculator.
you'll find it in the mortgage calculators section at How much will my mortgage cost me every month? but don't forget to take those set-up fees into account!
