How should I compare a 6.95% five-year fixed mortgage in Lima?

R

RueDrew

First-time buyer
Established
I’m comparing mortgage offers for a property purchase in Lima at around PEN 4,500,000. One lender has quoted 6.95% fixed for 5 years. Its advertised rate looked lower, but the arrangement fee and the applicable loan-to-value tier changed the picture. That offer also has a painful fee but much better overpayment terms.

Should I compare APR, interest paid during the five-year fixed period, or total cash cost including fees? I’m deciding whether the flexibility justifies the upfront cost and am also checking portability and what happens after the fixed period.
 
For this decision, I’d compare total cost through month 60: upfront fees, monthly payments, any expected overpayments, and the loan balance remaining at the end. APR can be useful, but it may reflect a longer assumed period than the five years you actually want to evaluate. Make sure every lender is being compared using the same loan amount and repayment term.
 
What are the quoted loan-to-value and full mortgage term? Also, is the arrangement fee paid upfront or added to the loan? Without those details, two offers with similar rates can produce quite different monthly payments and balances after five years.
 
I wouldn’t automatically treat the fee as a reason to reject it. If you genuinely expect to make substantial overpayments, better early-repayment terms could outweigh some or all of that cost. Run at least three cases: no overpayments, your realistic plan, and an earlier-than-expected sale. The flexible offer may win in one case and lose badly in another.
 
I’m more cautious about giving portability much value. Unless the lender confirms exactly when and under what conditions it applies, it is not equivalent to being able to transfer the loan freely. I’d also avoid assuming refinancing after five years will be cheap or available on similar terms. Compare the remaining balance and test whether the reset payment would still be manageable.
 
Monthly affordability deserves a separate test from total cost. Include the fee in the cash needed at completion if it is payable upfront, then model payments at 6.95% and at higher rates after the fixed period. An offer can be cheaper over five years yet leave too little monthly headroom, especially if overpayments are part of the plan rather than guaranteed.
 
Agreed on not assigning portability a theoretical value. I’d ask each lender for a written payment schedule and put the offers side by side with columns for initial cash, payments through month 60, overpayment charges, and balance at month 60. Then add separate sale and refinance scenarios. That should also reveal whether the lower advertised rate is being offset mainly by the fee or by the LTV tier.
 
The cleanest decision rule is to choose your likely comparison period first. If five years is realistic, compare all cash paid during those five years plus the remaining principal—not just interest or APR. Then stress-test a longer stay with a rate reset and a shorter stay with any early-repayment cost. Before choosing, get the fee treatment, overpayment limits, reset basis, and portability conditions confirmed in writing for the specific quote.
 
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