WITH nearly 6,500 mortgages on the market, from more than 137 different lenders, choosing a new deal can be a baffling experience — and the decision is becoming more complicated.

As competition between lenders intensifies, mortgages can no longer be compared on interest rates alone. Lenders seeking to stand out from the crowd are targeting homeowners through a plethora of unique selling points on everything from fees to flexibility.

Last year the focus was on offering the lowest rates, but with higher arrangement fees. This year, as borrowers grow wise to punitive fees, big high street lenders, such as Nationwide, Northern Rock and Woolwich, are responding by waiving arrangement fees on some deals altogether. But the catch is higher interest rates that could cause borrowers to lose thousands of pounds for the sake of saving a few hundred at the start of the deal.

Nick Gardner, director of Chase De Vere Mortgage Management, the broker, says: “Borrowers are wasting millions of pounds each year in extra interest with these deals and yet they probably think they are getting a bargain. It can be tempting to keep costs to a minimum when taking a mortgage, but borrowers need to be aware of the longer-term implications.”

A tracker from Nationwide at 0.29 percentage points above the Bank of England base rate — giving a rate of 4.79 per cent — has a £399 arrangement fee. Without this fee, the rate is 5.19 per cent. Over 25 years, on a £100,000 mortgage, the cost to the borrower of opting not to pay the initial fee would be £6,988.

But it is still important to try to avoid paying fees that are disproportionately high. Rob Clifford, chief executive of Mortgageforce, another broker, says: “Lenders seem to have invented numerous names for fees, including application, arrangement, booking, reservation, completion and early repayment fees. Some fees can add the equivalent of about 1 per cent to the interest rate. It is critical that you do the arithmetic and cost in all entry and exit fees.”

Paying attention to the fees at the beginning of the deal is one thing, but exit fees — the fees charged when borrowers redeem their loans — should not be ignored, even if the end seems a long way away. Of the mainstream lenders, Nationwide’s exit fees are the lowest, at £90, with Alliance & Leicester charging the most, at £295.

Louise Cumming, head of mortgages at Moneysupermarket.com, the price comparison website, says: “Most people do not think about exit fees when they take out a deal, but they can be a nasty surprise.”

Many new deals also place an emphasis on flexible payments, allowing borrowers to overpay a certain amount.

This week Nationwide reduced the rate on its two-year fix on loans up to 90 per cent of a property’s value, from

4.44 per cent to 4.39 per cent. For homeowners who are remortgaging, there are no legal or valuation fees and it allows overpayments of up to £500 a month. Halifax, which also has a 4.39 per cent two-year fix, allows you to overpay by 10 per cent of the outstanding balance each year.

The availability of new features means that remortgaging is a good opportunity to reassess your circumstances and find a more suitable mortgage. Ms Cumming says: “People’s financial situations may have changed since they last took out a mortgage, so it is vital that they do not automatically opt for the same type of deal as before. The ability to make overpayments may be especially valuable to those whose income is increasing.”

For those who have increased their savings, it could also be an opportunity to explore offsetting, where interest is charged on the difference between your savings and your home loan. Intelligent Finance has an online calculator that allows borrowers to work out by how much they could reduce their mortgage term if they offset.

When choosing a new deal, Ms Cumming says that the first port of call should be your current lender. “With such an emphasis on keeping customers, it is wise to check whether your lender is prepared to make staying worth your while.”

The time to think about new deals is not after your existing deal has come to an end, but a few months before. Preparation is the key if you want to benefit from new product features and avoid making repayments at the lender’s standard variable rate (SVR), to which the mortgage will switch when your current deal has finished. A typical SVR is about 6.75 per cent.

Mr Gardner says: “Many homeowners do not realise that they can waste hundreds, possibly thousands, of pounds in just a couple of months on unnecessarily high interest payments if they do not ensure a seamless move from one good deal to another. Anyone with a deal that expires in the next couple of months should start looking now so they do not waste a single day paying the SVR. Remortgaging is simple: you only need to fill in a couple of forms and it can be done in a matter of days.”

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