Mortgage comparison tools are great at one thing: showing you a monthly payment. They are not great at telling you which deal is actually cheaper.

If you’ve ever seen two fixed-rate products like these:

  • Deal A: slightly higher rate, no product fee
  • Deal B: slightly lower rate, has a product fee

…you’ve met the classic mortgage decision trap.

The right way to solve it is simple: treat the mortgage like a cashflow problem over a chosen time horizon, then compare apples with apples. This post gives you a method you can reuse for any two mortgage offers.

Step 1: Decide your horizon (and be honest)

A mortgage might last decades, but your product doesn’t. Most decisions are made at the product boundary:

  • 2-year fix
  • 5-year fix
  • 10-year fix

So your horizon is usually:

The length of the fixed period, because that’s the point you’ll likely review, remortgage, or switch.

Even if you plan to keep the house for 20 years, the correct comparison between today’s products is still: “Where will each deal leave me at the end of the fixed period?” That “end state” is what compounds into the next deal.

Step 2: Understand the three money buckets

For each deal, you have three relevant costs:

  1. Monthly payments you make during the horizon
  2. Fees / cashback / incentives (paid upfront or added to the loan)
  3. The balance remaining at the end of the horizon (the amount you still owe)

Most people compare only #1. That’s the mistake.

Why the remaining balance matters

Two deals can have similar monthly payments but leave you with different remaining debt at the end of the fixed period. That remaining debt affects your future interest costs for years.

So the right comparison is not just “who’s cheaper per month?” but:

Which deal gives me the best position at the end of the fixed period?

Step 3: Use the “economic cost” comparison

For a horizon of (H) months (e.g. 60 months for a 5-year fix), compute:

\[\text{Economic Total} = \underbrace{\sum_{t=1}^{H} \text{Payment}_t}_{\text{cash paid}} + \underbrace{(\text{Fees} - \text{Cashback})}_{\text{one-offs}} + \underbrace{\text{Balance}_H}_{\text{what you still owe}}\]

Lower total = better deal.

This single expression generalises cleanly:

  • It works even if you plan to remortgage later.
  • It works even if fees are added to the loan.
  • It works whether you care about cashflow or long-term cost — you just choose the horizon.

Step 4: The quick break-even test (for sanity)

Before you do anything detailed, do this quick check:

\[\text{Break-even months} \approx \frac{\text{Fee}}{\text{Monthly payment savings}}\]

If Deal B saves you £X per month but costs a £Y fee, then the fee “pays back” after about (Y / X) months.

This is not the full answer (because balance matters too), but it’s a very good smell test.

  • If you expect to leave the product before break-even, the fee deal is risky.
  • If you’ll be there well past break-even, it’s likely the fee deal wins.

Step 5: Pay the fee upfront or add it to the mortgage?

This is another decision that looks bigger than it is.

The maths

If you add the fee to the loan, you’re effectively borrowing that fee at the mortgage interest rate.

So your decision becomes:

  • Pay upfront if you’d rather avoid paying interest on it.
  • Add it if you value liquidity and keeping cash aside.

A clean way to think about it:

Paying upfront is like getting a risk-free return equal to your mortgage rate on that money.

So if your mortgage rate is ~4% and you add a fee to the loan, you’re choosing to finance that fee at ~4%. Whether that’s “bad” depends on your priorities and your cash buffer.

In practice:

  • Upfront is usually slightly cheaper.
  • Adding it is usually fine if you want to preserve cash and sleep well.

Sometimes lenders offer either:

  • Cashback, or
  • Free legal fees

People often treat this as a preference question. It isn’t. It’s a straightforward comparison:

Choose cashback if:

\[\text{Cashback} > \text{legal costs you’d otherwise pay}\]

Choose free legals if:

\[\text{legal costs covered} > \text{cashback}\]

The catch is the fine print.

“Free legals” often covers the standard conveyancing fee, but you might still pay:

  • ID / AML checks
  • bank transfer fee
  • searches / admin extras
  • specialist work (leasehold can be more complex than freehold)

So the correct approach is practical:

  1. Ask: “What’s excluded from free legals?”
  2. Estimate your out-of-pocket cost under both options.
  3. Choose the higher net value.

For straightforward cases (especially freehold), cashback often wins by a small amount. But if you value simplicity and low admin, “free legals” can still be rational even if it’s slightly less optimal in pounds.

Step 7: The decision framework you can reuse

Here’s the full reusable checklist:

  1. Pick a horizon (usually the fixed period)
  2. For each deal, compute:
    • total payments over horizon
    • all fees and incentives
    • remaining balance at end of horizon

  3. Compare using:

    \[\text{Payments} + \text{Fees} - \text{Cashback} + \text{Balance}_H\]
  4. Run a break-even months sanity check
  5. Decide fee handling:
    • upfront vs add-to-loan (liquidity vs slightly cheaper)
  6. Evaluate incentives (cashback vs free legals) using net out-of-pocket cost

This is what “being rational” looks like in mortgage land: not chasing the lowest monthly figure, but comparing end-of-period position.

A final note: why this method keeps you safe

Mortgage decisions tend to be emotional because the numbers are big and the terms are long.

This framework reduces the whole problem to:

  • a timeline,
  • a set of cashflows,
  • and one comparable “economic total”.

Once you do it once, you’ll never be fooled by a “low monthly payment” headline again.

Interactive calculators

Tweak the assumptions below to see the economic total and break-even change in real time. Defaults match the examples in this post; adjust as you like.