Choosing a mortgage these days involves much more than visiting two or three building societies on a Saturday afternoon and then comparing interest rates over a cup of tea.

More than 10,000 home loans are now offered by 127 lenders — and the total is growing. The number of two-year fixed rates alone has shot up by more than 50 per cent in the past 12 months, from 230 to 373.

It is hard to know where to start. There are discounts, trackers, fixes and variables, with a few offsets and drop-locks thrown in. There are even foreign currency loans, for those who really like a challenge. Once you have made up your mind, you then face the minefield of administration fees, valuation fees, transfer fees and early repayment charges (ERCs). Some are a percentage, others a fixed sum; some are high, some low. You can pay interest only or with capital repayment. You will be categorised for deals according to your income and employment status, but this at least narrows down your options.

Halifax, the UK’s biggest mortgage lender, offers 112 deals with 39 different fees and charges. Abbey, the second largest lender, has one deal with a fee of £1,999. Even lenders that trade on their simplicity, such as Nationwide, can offer a bewildering menu. The result for borrowers is more choice, but potentially more confusion.

Darren Cook, of Moneyfacts, the research group, says: “The diversity is incredible and is growing as lenders chase smaller niches. The downside is that it is becoming more complicated.”

One of the biggest dilemmas is the trade-off between interest rates and arrangement fees. Mr Cook says that there has been a lot of “tinkering” in the past three months, with rates going down but fees going up. “The classic dilemma is whether to go for a high fee and a low rate, or vice versa. There is always a sacrifice,” he says.

Low-rate deals carry the highest fees. But interest rates are higher on low or no-fee loans, so you are forced to compromise either way. Whether you pick the rate or the fee will depend on the size of your loan. James Cotton, of London & Country Mortgages, the broker, says that deals with big arrangement fees tend to suit larger loans and vice versa. But he adds: “The more options there are, the harder it can be to pick the right one.”

There is usually a break-even point at which it becomes worth paying the higher fee. For instance, Nationwide has a 4.47 per cent two-year fix with a £1,499 fee and another at 4.97 per cent with a £399 fee. For a repayment loan of £159,650 or more over 25 years, it becomes cheaper over two years to pay the high fee and take the lower rate. If you borrow less, you should take the higher-rate deal.

But higher fees do not always work on bigger loans. Nationwide has another two-year fixed rate at 4.88 per cent with a £699 fee, which Mr Cotton says is unlikely to be better value than the other two in any circumstances.

Personal preference is most likely to determine whether you choose a fix, tracker or variable-rate deal. Mr Cotton says that if your budget is tight or you are risk-averse, then it is worth opting for the security of a fixed rate. “If you are simply after the cheapest deal and not too worried about rate rises, then a variable deal would be suitable,” he says.

Trackers are a more transparent variable rate because they are pegged to the base rate, whereas discounted variable-rate deals can change at the lender’s discretion.

With interest rates likely to rise, longer-term fixes are becoming more popular. Rates fixed for up to 25 years appeal to those who want ultimate security, but they carry early repayment charges of about 3 per cent of your mortgage if you redeem the loan before the end of the term. These charges usually fall as a proportion of the loan over the years. Extending the term, or choosing to repay interest only, will reduce the monthly repayments but you will pay more interest overall.

If you opt for an interest-only mortgage, you should have a plan in place to clear the balance when the term ends. But this strategy is risky because it relies on the performance of your investments.

Flexible deals that allow unlimited under and overpayments often come at a premium, but they can be worth it if you receive annual bonuses or want to borrow back money you have overpaid.

Offset loans also come at a slight premium, but you could consider them if you have savings of at least 10 per cent of the mortgage balance. ()

CASE STUDY: A mortgage worth paying for

Daniel Mogford and Elizabeth Wood are about to switch to a Bank of Scotland two-year tracker pegged at 0.76 percentage points below the Bank of England base rate, giving a current pay rate of 3.99 per cent.

The couple, pictured with their children Daisy, 3, and Louis, 2, live in a four-bedroom mid-terrace house in Clapham, South London, and will be paying a fee of £1,499 for the privilege of the low rate. However, the loan will work out much cheaper than their previous deal from Intelligent Finance.

Their monthly repayments on the £170,500 loan will be £567 a month, down from current repayments of more than £700. They could have chosen a 4.29 per cent deal with a £699 fee, also from the Bank of Scotland, but the repayments would have been higher, at £609 a month. By paying the higher fee, the couple are saving a total of £220 over two years.

Daniel, a graphic designer, says: “Initially the fee looked steep, but we sat down with our broker and went through the figures. Then it became apparent that it made sense and would save us money.”

The couple have always used a broker for their mortgages. Daniel says: “Ours was recommended by a friend. I would never attempt to find the best deal by myself; there are far too many options out there.”

Where to look

The website at www.moneypilot.co.uk allows you to choose your own deal but the site also

offers telephone advice services. Another site, www.moneybackmortgages.com, lets borrowers broke their own deal, paying them half the commission — about 0.35 per cent of the loan — that lenders normally pay to brokers.

For more on the housing market visit www.timesonline.co.uk/mortgage