If only...

The view from Richmond Hill, admired (and painted) by JMW Turner and Joshua Reynolds in the 19th century, and by Rolling Stone Mick Jagger, who bought a house here in the 20th.

If APRs (Annual Percentage Rates) told the truth, the whole truth and nothing but the truth, life - at least, the mortgage-hunting side of life - would be a lot easier. A mortgage with an APR of, say, five per cent would be more expensive than a mortgage with a rate of anything less than five per cent.

Sorry, it does not work like that. Mortgages contain lots of bits, lots of small print. The total cost to you, the borrower, is the sum of all of those parts.

Before you agree to a mortgage, you should know precisely what it will cost, and be aware of other factors - for example, if you pay it off early.

You should also know the same things about other competing mortgages, to ensure you get the best deal.

Headline Rate

"Headline Rate" usually refers to interest you receive on a savings account but also applies to mortgages: the headline rate is the basic rate minus the small print. And the small print can make the headline rate a good, bad or ugly deal. A mortgage with a headline rate of 6 per cent looks better than one with a headline rate of 7 per cent.

But what if the 6% loan comes with a £2,500 arrangement fee, and the 7% loan has no arrangement fee?

What about other factors? How long does this rate apply? What is the new rate when this rate lapses? What if you want out before the end of the term? In other words, what other conditions lurk behind the Headline Rate?

Teaser Rate

A first cousin to headline rates, teaser rates tempt you with tantalisingly low rates. Again, you must find out what other terms and conditions come with that loan.

A teaser rate may indeed represent a good deal for you, but only if the entire loan package is a good deal. Consider the familiar "loss leader" in the supermarket: freshly caught haggis, half price ( £5 instead of £10). So you buy a haggis and save £5, but if you fill your trolley with other non-sale items, you may end up spending more than if you had bought the same things in another store.

APRs

Raise your hand if you think APR stands for April. An Annual Percentage Rate often doubles as a loan's Headline Rate.

In an ideal world, APRs would compare like with like and we would simply choose the loan with the lowest APR. In our real world, a mortgage with an APR of 7.5 per cent might be cheaper for you than one with a 7.0 APR.

How can that be?

Lender A and Lender B offer you a 25-year mortgage at 6%.

Their interest rates are identical, but they can vary enormously in other respects—many other respects. Arrangement fees immediately come to mind. Lender A charges £250, and Lender B charges a whopping £1000. But to sweeten the pot, Lender B is generous with other fees, and Lender A is greedier.

One or both of them might give you £500 or £5,000 in cash (a “cashback”), but will that cashback amount be added to your total mortgage or accounted for in a different matter.

The loans may vary in other respects, such as the charges for surveys and legal fees.

In a supermarket, the amount you pay equals the total of the items you buy. Mortgages are much more complicated than bacon and eggs. Some elements or items do not have a precise price tag. Different lenders use different methods to calculate their APRs.

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