Don't be fooled by the rate!

Homeowners are at risk of being caught out by low rate mortgage deals that have a nasty sting in their tail, experts have warned.

Rates on home loans have fallen to record lows in recent years, but at the same time stealth fees have been increasing. It means some of the 'cheapest' mortgages can actually cost customers hundreds of pounds more than products with higher rates.

The Post Office, for instance, is currently offering an eye-catching mortgage fixed at just 1.15 per cent for two years to borrowers with equity or a deposit of 40 per cent. But the product has fees of £1,995, which means on a £200,000 mortgage it would cost £7,540 in the first year.

Upon first glance, HSBC's 1.89 per cent fix looks to be more expensive but it has no fees, so would cost £6,036 in the first year on the same mortgage. A homeowner would save an astonishing £1,500 by opting for the 1.89 per cent mortgage over the 1.15 per cent deal.

In another case, Chelsea Building Society's 1.39 per cent two-year fix comes with fees of £1,675 (on loans at 75 per cent LTV). But homeowners borrowing £200,000 would save £1,291 in a year by opting for Norwich & Peterborough's building society's 1.84 per cent two-year deal.

Too many people mistakenly think that opting for the lowest rate is the best value deal. With fees on mortgages reaching up to £2,794, and the average charge at £939, homeowners have been urged to compare the entire cost of a mortgage.

Charlotte Nelson from Moneyfacts.co.uk said: "While these low deals look great on paper they are often compensated for by high fees that can scare even the most seasoned borrower.

“The low rate high fee favours those borrowers looking purchase properties at the high end of the housing ladder.

"However, large fees can turn what appears to be a cheap deal into a costly one for the majority.

“Borrowers choosing a two-year fixed rate, will find the size of the arrangement fee particularly important, as the short-term nature of the deal means that borrowers will have to remortgage relatively soon and could again pay yet another fee.

“It can often be a tortuous process looking for a mortgage as there are so many costs affecting the overall price. However borrowers should not be swayed by the low headline rate and work out the true cost of the loan."

This is one of the main reasons why borrowers should always use an independent mortgage broker when looking for a mortgage, as a good broker will always take fees into account when working out what will be the cheapest deal over the term.