Are you in the market for a new mortgage? If so, you’ve likely come across the term “APRC” and may be wondering what exactly it means. APRC stands for “Annual Percentage Rate of Charge” and it’s a new way of showing the overall cost of your new mortgage.
APRC is now a standard feature on mortgage adverts and quotations, including mortgage tables, thanks to the European legislation known as the Mortgage Credit Directive (MCD). The MCD is designed to create a single market for mortgages and provide protection for consumers.
Why is APRC important?
Lenders may advertise low, attractive interest rates to entice borrowers, but it’s important to remember that these rates may only be for a short period of time and the overall cost of the mortgage may end up being much higher over the long term.
It can be a false economy to choose a mortgage that appears to be a good deal for just a few years, only to find out that it’s much more expensive for the remainder of the mortgage term.
APRC is important because it shows you all the costs of your mortgage, including any broker fees, so you can see exactly how much you’ll be paying over the full term of the mortgage.
The APRC is included within the Key Facts Illustration (KFI), commonly called a mortgage quote.
How useful is it?
While APRC can give you an idea of the total cost of your mortgage if you never change the terms of the deal, the initial interest rate is likely the most crucial factor to consider, especially if you have plans to remortgage once the deal ends.
APRC is designed to help potential borrowers understand the total cost of a mortgage over the long term, including any changes in interest rates and additional charges. Unlike APR which only includes one interest rate and any fees, APRC takes into account the different rates that may be offered during the initial years of a mortgage or secured loan. This is especially important because some mortgages may offer a lower rate of interest for the first few years, and APRC helps to reflect this in its calculations.
When considering the overall cost of a mortgage, it’s important to factor in the fees in addition to the interest rate. The APRC includes the overall cost of a long-term mortgage, including the initial set-up costs. However, if you’re planning on switching mortgages frequently, you may avoid paying the more expensive standard variable rates, but you may end up paying arrangement fees every time you take out a new deal. In some cases, it may be more cost-effective to choose a mortgage with higher interest rate but no fees.
You will find more useful information in our: “Guide to Mortgage Fees“
What happened to APR?
It’s important to note that APRC is different from APR, which stands for “Annual Percentage Rate”.
The APR is a single figure that takes into account the interest rate and any fees you’ll need to pay when you first borrow the money. The main difference is that APRC offers you a more complete picture of your mortgage, as it considers the fact that your interest rate will probably change in the future.
While we have had many years of low interest rates, whenever the Bank of England rate changes it affects many mortgages.
So how do you get a mortgage with a low APRC?
It depends on a variety of factors, such as having a good credit history, the size of your deposit, how much you want to borrow and for how long.
The amount of your deposit and loan-to-value ratio (LTV) are two important factors that lenders consider when assessing your application. A higher deposit will result in a lower LTV and therefore better rates, while a smaller deposit could mean you need to accept less competitive rates or pay additional fees.
How a mortgage broker can help
A whole of market mortgage broker can help you compare a wide range of mortgage products from different lenders and guide you through the application process. They can also advise you on any additional costs or fees that may be involved, and what kind of APRC would be applicable for each product.
With their help, you should be able to find a mortgage with a low APRC that fits your needs and budget.
What’s the difference between APRC, APR and AER?
Are you trying to understand the difference between APRC, APR, and AER? All three terms are used to compare financial products, but they are used in slightly different ways.
APR (Annual Percentage Rate) is a way of comparing the cost of loans, car finance agreements or credit cards. It includes both the interest rate and any fees associated with borrowing.
APRC (Annual Percentage Rate of Charge) is used specifically for mortgages and secured loans. It takes into account both the introductory rate and the variable rate that borrowers will move onto at the end of a fixed rate deal, providing a clear indication of the average interest rate and associated fees on an annual basis if you kept the loan or mortgage for the whole term.
AER (Annual Equivalent Rate) is used to compare savings accounts. It assumes that you’re going to keep your savings in the account for a year, and it takes into account any compound interest and any bonus introductory rates.
What are the different mortgage repayment methods?
Although repayment mortgages are the most popular, there are actually three ways that a mortgage can be setup. You need to have made your mind up before you apply for a new mortgage as the repayment method forms part of the application form. Also, not all lenders offer all three options.
Finally, it’s worth noting that each lender and mortgage provider will set their own APRC. They will take into consideration a number of different factors, including the level of risk, how much it will cost them, and the market competition. Additionally, lenders may also refer to the Bank of England’s base rate as a general guideline.
Overall, APRC is a new and important way to measure the overall cost of your mortgage and it’s something you should keep in mind when shopping for a mortgage. So, do your research and make sure you understand the costs of your mortgage before making a decision.
