If you have spent time searching for properties, it’s highly likely you will have come across the abbreviation “APRC” and while there are many abbreviations in the world of property, it is important to understand exactly what APRC means and how it works.
We’ve created this short guide on what APRC is and how it can help you in your property search.
What Does APRC Mean and Why is it so Important?
APRC stands for Annual Percentage Rate of Charge and is a comprehensive measure of the true cost of a mortgage over its entire term. Unlike the standard interest rate, which only reflects the cost of borrowing money, APRC includes all the associated fees and charges that come with a mortgage. These can include application fees, valuation fees, legal fees, and more.
In essence, the APRC provides a more accurate representation of the total cost of borrowing for a mortgage. By law, lenders are required to disclose the APRC alongside the interest rate, allowing borrowers to make more informed decisions, therefore helping us to compare mortgages and work out which will provide us with the best deal.
For example, some mortgages may appear to have a low-interest rate, but the charges associated with them could make the mortgage expensive. You will be able to gain a better picture of the full cost of the mortgage by paying attention to the APRC, therefore helping you to make a more informed choice.
How is APRC Calculated?
You may be familiar with how a mortgage works. Your lender will usually offer you an attractive introductory rate, which lasts for a set period and once you reach the end of your fixed-rate period, you will then be moved onto the lender's standard variable rate, which is usually much higher. Both the introductory and long-term interest rates will be considered when calculating the APRC of your mortgage, plus any additional fees. Below is a simplified breakdown of the key APRC components:
- 1. Interest Rate This is the base rate at which you are borrowing money and is a significant component of the APRC.
- 2. Fees and Charges This includes all the upfront and ongoing costs associated with the mortgage. Common fees include application fees, valuation fees, legal fees, and annual service fees.
- 3. Mortgage Term The length of your mortgage term plays a role in APRC calculation. Longer-term mortgages typically have higher APRCs because they accumulate more interest over time.
- 4. Repayment Schedule The type of mortgage (e.g., fixed-rate, adjustable-rate) and the frequency of payments also impact the APRC.
- 5. Discounts or Incentives Some lenders offer discounts or incentives, which can affect the APRC and might include cashback offers or lower fees for certain conditions.
APRC and Your Personal Financial Situation.
The APRC gives borrowers a clear picture of the total cost of their mortgage, which helps in comparing different mortgage offers from various lenders. While one lender may offer a lower interest rate, their APRC might be higher due to hidden fees, making it a less favourable option. It’s important to fully understand what APRC is and how it affects your personal financial situation as knowing what the APRC is upfront allows you to budget more accurately. You won't be caught off guard by hidden fees or escalating costs down the line, as the APRC takes all of these into account from the beginning.
Things to Consider when Searching for a Low APRC Home Loan.
The APRC of a mortgage is dependent on many factors, some of which you are and are not able to influence, and range from how reliable a borrower you are to the state of the market at the time. Some factors that you may be able to influence to give yourself the best chance of securing a loan with a low APRC are:
- The size of your deposit – the more money you can save for payment upfront for your property, the lower your interest rates will be, and vice versa.
- The amount you need to borrow – although you still need to borrow within your means to have your application accepted and to be able to make the monthly repayments, it is a general rule that the more money you need to borrow, the lower the APRC will be. However, it is not wise to borrow more money than you need to just to secure a lower APRC rate.
- The health of your credit report – you are likely aware that having as good a credit report as possible gives you the best chance of borrowing the money you need for the property you desire. The credit report is a tool that lenders use to determine whether you are reliable with your repayments. To gain the lowest possible APRC on a mortgage you will need to have a very good credit rating and history.
- Your mortgage term – by extending the length of your mortgage, you can reduce the amount you have to repay each month. However, this can drive up interest charges, as you will pay interest over a longer period. The best approach is to borrow as little as possible and pay it back as quickly as possible, avoiding any early repayment fees, which can also drive up the overall cost of your loan.
TaylorMade: Leading Mortgage Broker in Manchester.
Here at TaylorMade, we understand just how confusing getting a mortgage can be, whether it’s APRC, APR, or AER, our team of expert mortgage advisors have the expertise in our field to equip you with the knowledge you need to make informed mortgage decisions.
We are a trusted, independent mortgage advisor in Manchester, able to guide you through each step and explain everything in plain terms so nothing gets lost in translation. Contact us today, expert mortgage brokers in Manchester, or arrange a callback, to see how we can help you.
