This is not always true. If the mortgage fee is £1000 for a 5 year deal, then that's the equivalent of £16.67 per month (1000 / 60) so if the higher interest rate makes the monthly payment increase by more than this, then go with the fee-based product, otherwise take the higher rate. Of course there may be different early redemption fees and overpayment rules to consider with the different offers to consider, but I would say it is unlikely that anyone will be needing to redeem early on the current low rates, especially with a further 5yrs on the mortgage after the deal ends. Also
@yeseye , adding the mortgage fee onto the amount borrowed will attract interest on it so that will make that fee become nearer to £1066 after compounding 5yrs interest on it.
I had a quick look at the 5yr and 7yr non-fee products yesterday and worked out that if you took the 7yr product, in comparison with the 5yr then you would have paid £1740 more overall
at the 5yr mark. This means that if you took the 5yr deal you would need something around 4.25% in 5yrs time (when you need to find a new deal) to still pay less than the 7yr deal. I would think that interest rates won't go that high but of course you never know.
The benefit of a 7yr deal on a 10yr mortgage, to me, is that if interest rates do start increasing dramatically in the coming years, you have time to do a lot of overpaying to take advantage of the locked in rate and reduce that 10yrs to 8.5 or 9 yrs, resulting in a really short period of later years higher payments. Just my 2-penneth.