Mortgage comparison lesson
Mortgage Comparison Tool Tutorial
Learn how to compare UK mortgage deals using fixed rates, product fees, follow-on rates, monthly payments, remaining balance, and total borrowing cost.
Estimated time: 16 minutes
Learning objectives
- Understand why mortgage comparisons need more than the headline fixed rate or monthly payment.
- Explain fixed rates, product fees, follow-on rates, remaining balance, and total borrowing cost.
- Compare two deals mathematically using monthly payments, interest, fees, and balance after the fixed period.
- Use the Mortgage Comparison Tool to check a deal side by side before tracking the chosen mortgage in the dashboard.
Educational estimates, not advice
This tutorial explains the maths behind a mortgage comparison estimate. It is not a recommendation to choose, switch, or keep any mortgage product. Real offers depend on lender criteria, fees, valuation, legal work, early repayment charges, and your circumstances.
Lesson 01
What the comparison tool solves
The Mortgage Comparison Tool answers a practical question: which deal looks cheaper once payments, fees, follow-on rates, and remaining debt are compared together?
A mortgage deal can look attractive because the fixed rate is lower or the monthly payment is smaller. That does not automatically make it cheaper. Product fees, whether those fees are added to the mortgage, and the balance left after the fixed period can change the result.
The comparison tool estimates each deal month by month. It then shows several signals: lower initial payment, cost during the fixed period, balance after the fix, total interest, and modelled full-term cost.
Lesson 02
Fixed rates, product fees, and follow-on rates
These inputs explain why a mortgage with the lowest fixed-rate payment can still cost more once fees and later rates are included.
Mortgage amount
The amount borrowed for the mortgage being compared. Use the same mortgage amount for both deals unless you are deliberately testing different borrowing levels.
Mortgage term
The number of years used to spread repayment. A longer term can reduce the monthly payment but may increase total interest.
Fixed interest rate
The rate charged during the fixed period. This drives the initial monthly payment and interest charged before the deal ends.
Fixed years
How long the fixed rate lasts. A two-year fix and a five-year fix are not the same comparison period, so check both cost during the fix and the remaining balance.
Product fee
A lender fee for the deal. It may be paid upfront or added to the mortgage, where it can attract interest.
Follow-on interest rate
The rate modelled after the fixed period ends. This is often a standard variable or reversion rate assumption, not a guarantee of what you will actually pay.
Monthly overpayment
Any regular extra payment included in both or either deal. This can lower the balance and interest, subject to lender limits and early repayment charge rules.
Lesson 03
How mortgage comparisons work mathematically
The tool calculates each mortgage as its own repayment schedule, then compares the outputs side by side.
The monthly repayment formula is used to estimate the contractual payment for the current rate and remaining term. During the fixed period, the fixed rate is used. After the fix, the follow-on rate assumption is used for the remaining balance and term.
Because the balance changes every month, the tool does not compare rates alone. It estimates interest, capital repayment, fees, total paid, and the balance still owed at key points.
M = P x r / (1 - (1 + r)^-n)M is the contractual monthly payment, P is the balance being financed, r is the monthly interest rate, and n is the remaining number of monthly payments.
Cost during fix = upfront fees + payments made during fixed periodThe remaining balance after the fix matters too, because a deal with similar payments may leave more debt outstanding.
Total modelled cost = upfront fees + monthly payments during fix + monthly payments after fixIf a product fee is added to the mortgage, it increases P and can also increase interest. If it is paid upfront, it is counted as an immediate cost.
Set the financed balance
Start with the mortgage amount. If a product fee is added to the mortgage, add it to the balance. If the fee is paid upfront, keep it outside the mortgage and count it as an immediate cost.
Financed balance = mortgage amount + fee added to the mortgageEstimate the fixed-rate monthly payment
Use the repayment formula with the financed balance, fixed rate, and full mortgage term. This gives the contractual payment during the fixed period.
Monthly repayment formula M = P x r / (1 - (1 + r)^-n)M is the contractual monthly payment, P is the balance being financed, r is the monthly interest rate, and n is the remaining number of monthly payments.
Project each month of the fixed period
Each month, estimate interest on the current balance, then use the payment to cover interest and reduce the debt.
Monthly interest = current balance x annual rate / 12 / 100Recalculate after the fix
When the fixed period ends, use the remaining balance, follow-on rate, and remaining term to estimate the post-fix payment.
Post-fix payment = remaining balance x new monthly rate / (1 - (1 + new monthly rate)^-remaining months)Compare more than one winner
The tool compares the lower monthly payment, cost during the fixed period, remaining balance after the fix, and modelled full-term cost. These can point to different deals.
Lesson 04
Worked example comparing two mortgages
This example shows why the cheapest monthly payment is not always the cheapest mortgage.
Worked example
Two £220,000 mortgages over 25 years
M = P x r / (1 - (1 + r)^-n)M is the contractual monthly payment, P is the balance being financed, r is the monthly interest rate, and n is the remaining number of monthly payments.
Set up the two deals
Both examples borrow £220,000 over 25 years with a two-year fixed period. Mortgage A has the lower fixed rate but adds a £4,999 fee to the loan. Mortgage B has a slightly higher fixed rate but no product fee.
- Mortgage A
- 4.10% fixed, £4,999 fee added, 7.50% follow-on
- Mortgage B
- 4.35% fixed, no fee, 6.49% follow-on
Work out the financed balance
Mortgage A starts with a higher balance because the fee is added to the mortgage. Mortgage B starts at the original mortgage amount.
A: £220,000 + £4,999 = £224,999. B: £220,000 + £0 = £220,000Estimate the monthly payment during the fix
The lower fixed rate makes Mortgage A look slightly cheaper each month, even though the added fee means it starts with more debt.
- Mortgage A fixed-period payment
- About £1,200/month
- Mortgage B fixed-period payment
- About £1,204/month
Check the cost and balance after two years
The monthly saving is small. After the fixed period, Mortgage A has only cost about £98 less in payments but leaves about £4,408 more debt outstanding.
- A paid during fix
- About £28,802
- B paid during fix
- About £28,900
- A balance after fix
- About £214,230
- B balance after fix
- About £209,822
Model the follow-on rate and full term
If the borrower stayed on the modelled follow-on rates, Mortgage A's higher remaining balance and higher follow-on rate would dominate the small early monthly saving.
- A modelled full-term cost
- About £478,992
- B modelled full-term cost
- About £433,381
- Difference
- Mortgage B about £45,611 lower
- This illustrates the maths, not a prediction that anyone would stay on those follow-on rates for 23 years.
Final result
Mortgage A has the lower initial monthly payment by about £4, but Mortgage B leaves about £4,408 less debt after the fix and is about £45,611 cheaper over the modelled full term.
Lesson 05
Visual breakdown of costs
The fixed-period payment is only one part of the comparison. The remaining balance after the fix can be the bigger signal.
The bars below compare the two-year payments and the balance still owed after the two-year fixed period. In this example, Mortgage A saves about £98 in fixed-period payments but leaves about £4,408 more mortgage debt.
That is why a side-by-side comparison should include both cash flow and balance movement. If you expect to remortgage after the fix, the balance left at that point may be more useful than the tiny monthly saving.
Mortgage A payments during fix
£28,802
Slightly lower monthly payment during the initial two years.
Mortgage A remaining balance after fix
£214,230
Higher because the product fee was added to the mortgage.
Mortgage B payments during fix
£28,900
About £98 more paid during the two-year fixed period.
Mortgage B remaining balance after fix
£209,822
Lower balance gives more room if remortgaging later.
Worked example
Why cheapest monthly is not always cheapest
- A lower monthly payment can be caused by a longer term, a lower short-term rate, or a fee added to the mortgage. Each can increase the total cost in a different way.
- Product fees paid upfront affect cash today. Product fees added to the mortgage can increase both the balance and the interest charged on that balance.
- The follow-on rate matters if you do not remortgage or switch product when the fix ends. The tool models it so you can see the risk, not because it predicts future rates.
- A deal can have the lower payment but leave a higher remaining balance after the fixed period. That matters if you plan to remortgage, sell, or make overpayments later.
Lesson 06
Common Mistakes
Comparison mistakes usually happen when a learner compares one headline number instead of the whole deal.
- A lower monthly payment can be caused by a longer term, a lower short-term rate, or a fee added to the mortgage. Each can increase the total cost in a different way.
- Product fees paid upfront affect cash today. Product fees added to the mortgage can increase both the balance and the interest charged on that balance.
- The follow-on rate matters if you do not remortgage or switch product when the fix ends. The tool models it so you can see the risk, not because it predicts future rates.
- A deal can have the lower payment but leave a higher remaining balance after the fixed period. That matters if you plan to remortgage, sell, or make overpayments later.
- Comparing a fee-free deal with a fee-added deal without checking the balance left after the fixed period.
- Assuming the follow-on rate will definitely apply or stay unchanged. It is a modelling assumption, not a forecast.
Lesson 07
Calculator walkthrough
Use the calculator to compare one pair of deals at a time, then change one assumption to see what moved.
- Open the Mortgage Comparison Tool and enter the same mortgage amount and term for both deals unless you are deliberately testing a different borrowing scenario.
- Enter each fixed interest rate and fixed period. If the fixed periods differ, compare the fixed-period cost carefully because the time windows are not identical.
- Add the product fee and choose whether it is paid upfront or added to the mortgage. Added fees increase the financed balance.
- Enter a follow-on rate for each deal. Use a cautious assumption and remember this is not a forecast or advice.
- Check monthly payment first, then compare cost during the fix, remaining balance after the fix, total interest, and total modelled cost.
- Use the Mortgage Dashboard after choosing or modelling a mortgage so you can track balance, interest, and overpayment decisions over time.
Practice question
Exam Style Question
Mortgage A costs £1,020 per month for 24 months and has a £999 fee. Mortgage B costs £1,055 per month for 24 months and has no fee. Ignoring balance differences, which is cheaper over the fixed period and by how much?
Show the two fixed-period totals, then subtract the lower total from the higher total.
Cost during fix = upfront fees + payments made during fixed periodThe remaining balance after the fix matters too, because a deal with similar payments may leave more debt outstanding.
Full solutionShowHide
Mortgage A costs £25,479 and Mortgage B costs £25,320, so Mortgage B is cheaper by £159 in this narrow payment-plus-fee comparison.
Calculate Mortgage A's fixed-period cost
Multiply the monthly payment by 24 months, then add the product fee.
£1,020 x 24 + £999 = £25,479Calculate Mortgage B's fixed-period cost
Mortgage B has no product fee, so only the 24 monthly payments are counted in this simplified question.
£1,055 x 24 + £0 = £25,320Compare the totals
Subtract the lower total from the higher total.
£25,479 - £25,320 = £159State the limitation
This answer only compares fixed-period payments plus fees. A fuller mortgage comparison should also check remaining balance, incentives, ERCs, and later rates.
Practice questions
Worked solutions
Try each question first, then open the solution to check the comparison steps.
Practice question
Spot the added-fee effect
Two deals both start from a £180,000 mortgage amount. Deal A has a £999 product fee added to the mortgage. Deal B has no product fee. What financed balance should each deal use before calculating the monthly payment?
Decide whether the fee changes the loan balance or sits outside the mortgage as an upfront cost.
Worked solutionShowHide
Deal A uses a financed balance of £180,999. Deal B uses £180,000. Deal A may therefore charge interest on the fee if it remains on the mortgage.
Add the fee only where it is financed
A fee added to the mortgage increases the balance used by the repayment formula.
Deal A financed balance = £180,000 + £999 = £180,999Leave the no-fee deal unchanged
Deal B has no product fee, so its financed balance is unchanged.
Deal B financed balance = £180,000Interpret the result
A small fee can look harmless beside the monthly payment, but adding it to the loan can increase interest over time.
Practice question
Why the lower monthly payment may lose
Deal A costs £1,200 a month for two years and leaves £214,230 outstanding. Deal B costs £1,204 a month for two years and leaves £209,822 outstanding. Which deal has the lower monthly payment, and what extra number should you compare before deciding it is cheaper?
Calculate the monthly difference, then compare the remaining balances after the fixed period.
Worked solutionShowHide
Deal A is about £4 cheaper each month, but Deal B leaves about £4,408 less debt after the fix. The lower monthly payment is not enough information on its own.
Compare the monthly payments
Deal A has the lower initial monthly payment.
£1,204 - £1,200 = about £4/month lower for Deal ACompare the remaining balances
Deal B leaves much less debt after the fixed period in this example.
£214,230 - £209,822 = about £4,408Make the comparison meaningful
A useful comparison checks monthly payment, fixed-period cost, remaining balance, and likely next step after the fix, not just the lowest payment.