What is APRC?
APRC stands for Annual Percentage Rate of Charge.
When choosing a mortgage, it’s important to get to grips with the different rates shown so you understand how much any deal you are considering will cost you.
Under Mortgage Credit Directive (MCD) rules, which were introduced by the European Union to standardise regulations for home financing across the EU, any mortgage quotes shown to you must include what is known as an ‘Annual Percentage Rate of Charge’, or APRC.
What does the APRC show?The APRC tells you how much your mortgage will cost you each year, assuming you kept it for its full term. It not only factors in the initial rate you’ll pay, but also the standard variable rate after any special deal period finishes, along with any associated mortgage costs, such as an arrangement fee.
The APRC is usually shown alongside various other rates so that you have a clear idea of how much you’ll pay at each stage of your mortgage, and overall.
So, for example, if you are looking for a two-year fixed rate mortgage, any deals quoted should display the initial rate, which is the rate during the two-year fixed period, then the variable rate you’d move onto once the two-year deal finishes, as well as the APRC, which is the overall cost for comparison.
What is the APRC2?
The MCD also requires lenders to provide a second APRC, or APRC2, in its mortgage illustration document, known as an ESIS (European Standardised Information Sheet). The ESIS explains the details of a mortgage and must be given to you when a lender or an adviser recommends a particular deal, or when a lender gives a mortgage offer. The APRC2 must be given in the ESIS whenever a mortgage is offered which has a variable rate at any point during the term, such as a standard variable rate or tracker rate.
The APRC2 is an illustrative example of the cost of the loan using a 20-year high interest rate, which can either be based on a benchmark rate provided by the city regulator the Financial Conduct Authority (FCA), or on a relevant external reference rate.
Which rate is most important when choosing a mortgage?While the APRC and APRC2 can be useful to look at when comparing mortgages, bear in mind that many people remortgage when their initial rate finishes.
This enables them to take advantage of other competitive mortgage deals rather than move onto their lender’s often more expensive standard variable rate when their current deal ends.
As a result, the initial rate is usually likely to be of most interest for many homebuyers when choosing a mortgage, rather than the APRC which shows the rate if you stayed with the same deal throughout.
If in doubt, seek professional advice to help you work out which mortgage deal will be most cost-effective for you.