Why choose mortgage with product fee?

[FluidDruid]

Just spoken to bank about mortgages available to us, both no fee and with fee. All of them end up costing less to have the no fee product because the additional mortgage you pay each month is less over the fixed rate period than paying the product fee and getting a lower rate.

This makes no sense to me - why would anyone ever choose to pay the fee?

The fee might make financial sense if you had a large mortgage, but they rarely do on smaller mortgages

The ones with the fee have always cost less when I’ve remortgaged.

This depends on your mortgage size. Our fee was about a grand less than the additional interest would have been, from memory, and this was pre-2022 when the gap between the rate with and without a fee wasn’t as big as it can be now.

Blimey. Our mortgage is 210,000. Over 20 years so maybe that's why.

Were you also checking if the fee is paid upfront or whether it is added to the loan as paid upfront usually makes it cheaper when comparing total costs as well

Yes, our mortgage is higher and over a longer period so it was cheaper for us to get the product fee and lower rate.

Ours has always worked out cheaper overall with a fee

@vrouge good point but took the fee as we would pay upfront so that wasn't changing it. I was surprised as could see it not making much difference but that it was actually more affordable not to do it was unexpected. I can see how it would depend on mortgage amount and length of time though as the percentage difference would really count then.

I calculate the cost to the end of the fixed period (not the full term). Whether the fee or no-fee option is cheaper depends on the difference in interest rate, the fee, and how long you fix for.

When rates were low I nearly always found the no-fee option cheaper. It's about equal for my personal circumstances right now.

The calculator below does the hard work for you, but does assume you add the fee to the mortgage (which I never do). So I do that bit manually

https://www.moneysavingexpert.com/mortgages/compare-mortgage-rates/