The market by letters – A

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
It is likely to differ from the “headline” rate of a mortgage (the initial rate you pay) due to the addition of set-up costs .

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.
That said, the APR is still a useful tool when comparing loans but it should only be part of your research.  You can use our search and select tool to compare different mortgages monthly payments, set up costs and of course APRs!  You can also compare the average annual costs of loans over their initial scheme rate.

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