Product fee vs interest rate

Many remortgage deals come in two flavours: a lower headline rate with a higher product fee, or a slightly higher rate with a lower fee. The “best” deal depends on your loan size and how long you’ll keep it.

Compare with break-even Estimate payments How to compare deals

Quick answer

If your loan is larger and you’ll keep the deal longer, paying a product fee for a lower rate can make sense. If your loan is smaller or you expect to switch again soon, a lower-fee deal is often cheaper overall. The easiest method is to compare by break-even: monthly saving versus fees.

What “product fee vs rate” really means

Lenders often let you “choose” how you pay for a deal. One version charges a higher upfront fee but gives you a lower interest rate. Another version charges a lower fee (or none) but the rate is higher.

The fee is a fixed cost. The rate cost scales with your balance over time. That is why your balance and your time horizon matter so much.

Costs and what affects them

The product fee
  • Fixed cost (often £0 to £1,999+).
  • Hurts more on smaller loans because it is a bigger percentage of the balance.
  • If added to the mortgage, you pay interest on it.
The interest rate
  • Ongoing cost that scales with your balance.
  • Matters more on larger balances.
  • The longer you keep the deal, the more rate differences add up.

Simple way to think about it: fees are “upfront pain”, rates are “monthly drip”. Your job is to choose the cheapest total for your own timeframe.

Pitfalls to avoid

Checklist: how to compare two deals properly

  1. Estimate monthly payment for Deal A and Deal B using the payment calculator.
  2. Add up switching costs (product fee, broker fee, legal/valuation if not free).
  3. Include any ERC if switching early (see ERC guide).
  4. Subtract any cashback.
  5. Run the numbers through the break-even calculator.
  6. Choose the deal that is cheaper over the time you realistically expect to keep it.

FAQs

Not necessarily. A lower rate with a high product fee can cost more overall, especially if you keep the deal for a short time or have a smaller loan.

Often when the loan is larger and you expect to keep the deal for long enough that monthly savings outweigh the fee. Break-even is a practical way to compare.

Adding it increases the loan, so you pay interest on the fee. It can help cashflow, but it usually increases total cost compared to paying it upfront.

Estimate monthly payments for both deals, then include fees (and any ERC) and calculate break-even. If you won’t keep the deal past break-even, the lower-fee option can be cheaper.

Yes. Cashback reduces your net cost, which can make a slightly higher rate attractive if it cuts fees and improves break-even.