Knowing your APRC from your interest rate is a big help when choosing a mortgage or if considering a remortgage to get the value out of your home.
APRC, Annual Percentage Rate of Charge, is one of those terms you hear added on at the end of a mortgage offer. The APRC appears in the small print, with the implication that everyone knows what it means.
The Interest Rate gets top billing, as if it is the only thing you need to consider when taking out the mortgage. The interest rate is vital, of course, but is it the only rate you need to consider?
Let’s take a closer look at the APRC vs. Interest Rate debate and see how you should really look at both when talking to lenders.
What does the Annual Percentage Rate of Charge mean?
The APRC gives you the total cost of a proposed mortgage over the life of the loan. An APRC figure tells you the price of the mortgage, including all fees, current interest rates, and future interest rates.
With the APRC, there are no surprises. Your annual payments will show the broker, legal, and lender fees, as well as interest repayments and the cost changes if you go from a fixed-rate mortgage to a variable-rate mortgage.
The APRC will also factor in mortgage insurance, which you have to get, and any setup charges your lender may apply.
Knowing your APRC payment is an excellent way to compare mortgages from different lenders.
What does Interest Rate mean when getting a mortgage?
The interest rate is the cost to you of borrowing a mortgage from a lender. It is expressed as a percentage, such as 2% or 4.5%, and is applied to the total amount borrowed.
Your repayments can be shown in very simple terms by knowing the lender’s applied interest rate.
Lenders offer different interest rates, but they are a crude way to determine the cost of a mortgage.
If you are taking out a mortgage over 10, 20 or 30 years, it is very likely that interest rates will change, and even a small change can make a big difference when borrowing large amounts of money.
Interest rates are part of the decision-making process when choosing a mortgage provider, but you should also look at the bigger picture.
APRC vs Interest Rates: What You Need to Know
You need to know what both are regarding your proposed mortgage or remortgage before putting pen to paper. Knowing the interest rate tells you some of the cost of borrowing, but knowing the APRC tells you all the costs.
Interest rates are a great indicator of the cost of a mortgage, but not the only one. For example, does a quoted interest rate apply to you? Some interest rates only apply to higher mortgages, and in some cases, are only applied if you have a substantial deposit or if you have an excellent credit score.
A fixed interest rate will become a variable interest rate at some stage, typically after the first five years of a mortgage. Can you afford to pay what could be an increased interest rate over the remaining life of the mortgage?
When you have the APRC, you have a better idea of what you will be paying when you take out the mortgage. All your fees from day one are included in the quoted annual payment rate.
Charges such as an early repayment penalty or a missed payment penalty may appear in your APRC and should be considered.
Crucially, interest rate changes are factored in, which is vital when you switch from a fixed rate to a variable rate.
Interest rates are part of deciding on a mortgage, but the APRC is essential for making the final decision.
