Our weekly look at the mortgage market, letter by letter starts with that perennial favorite
A is for APR.
APR stands for Annual Percentage Rate, and is designed to allow you to compare different credit and loan offers by describing the interest rate for a whole year rather than just a monthly fee/rate.
It’s calculated using a number of factors including
- The interest rate on the loan
- The length of the loan
- Certain Fees associated to the loan
There are a number of problems associated with using an APR to compare mortgages – including
- It looks at the average cost of borrowing for the whole term of the mortgage, most people in the UK will switch their mortgage a number of times – either when remortgaging, or moving property
- It assumes a lenders Standard Variable Rate will not change for the period of the loan
- Some fees are not included in the calculation – including importantly any broker fee where one is payable.