APRC, or annual percentage rate of charge, is a measure of the overall cost of a loan, including the interest rate and any additional fees or charges associated with the loan. However, in the UK, APRC is not always the most relevant measure of a mortgage’s cost because it does not take into account certain factors that are unique to UK mortgages.
One such factor is the arrangement fee or booking fee, which is a fee charged by lenders to cover the cost of setting up the mortgage. This fee can vary widely between lenders and can significantly affect the overall cost of the mortgage, but it is not included in the APR calculation.
Another factor is that many UK mortgages have variable interest rates, which can change over time. This means that the APR, which is calculated based on a fixed interest rate, may not accurately reflect the true cost of the mortgage over the life of the loan.
For example, looking at a 2 year fixed rate with an overall mortgage term of 25 years gives you a fixed rate of interest for those first 2 years, but after the 2 years the APR is calculated for the remaining 23 years at the lender’s Standard Variable Rate (SVR). The SVR is a rate that is subject to change at any time and it’s a rate that we, nor any other broker would advise you to stay on. The main reason is that you aren’t contracted to remain on the SVR with most deals these days and we’ll look at hopefully locking in a better rate for after your current fixed period ends.
Instead of relying solely on the APRC, borrowers should consider other factors such as the interest rate, the arrangement fee, any early repayment charges and any other fees or charges associated with the mortgage. Then you need to consider the conditions of the mortgage and whether it meets your specific needs and financial situation.
Finally, the overall balance remaining after the product term (for example a 2 year fixed rate) needs to be considered as this is how much you’ll be left with after the 2 years. The lower the better right?
So we always look at the true cost of the mortgage when determining the best deal. The total cost (monthly payment and fees etc) over the product term plus the remaining balance after that term.
