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Arrangement fee vs interest rate (UK): which matters more for a 2-year fix?

Fees and rates both matter. Over a 2‑year fix, a lower rate with a higher fee can cost more (or less) than a higher rate with no fee.

Published: 24/03/2026 • Last verified: 24/03/2026

The short answer

Over a two‑year fixed deal, the question isn’t “fee or rate?” — it’s total cost over two years.

A lower interest rate can save you money every month, but an arrangement fee is often paid upfront (or added to the mortgage). Depending on the loan size, the fee can outweigh the rate saving — or the rate saving can outweigh the fee.

A tiny example

Illustrative example (interest-only to keep the maths simple):

  • Mortgage: £200,000
  • Two-year period: 24 months

Deal A: 4.20% with a £999 fee
Deal B: 4.40% with no fee

Approx monthly interest:

  • Deal A: (£200,000 × 0.042 / 12 ≈ £700)
  • Deal B: (£200,000 × 0.044 / 12 ≈ £733)

Monthly difference ≈ £33. Over 24 months that’s about:

  • (£33 × 24 ≈ £792)

In this simplified example, the £999 fee is larger than the interest saving — so Deal B could cost less overall. With a bigger mortgage or a bigger rate gap, the answer can flip.

To compare with your own numbers:

Sources