In this brief guide, we are going to answer the question “what is APRC?”.

APRC is commonly found when looking at mortgage deals and you may be wondering “what is APRC”.

What is APRC?

APRC stands for Annual Percentage Rate of Charge. APRC is the number quoted by lenders when advertising a loan or a mortgage. APRC is a standard way of calculating interest which shows you the total cost of the product you are about to borrow including any fees.

The main aim of APRC is to make it much easier for you to compare mortgages.

APRC and mortgages

When looking to get a mortgage it is important to understand the different rates which you may be quoted.

Understanding rates such as APRC will help you understand your mortgage products better. It will also help you understand the true benefits of any mortgage or remortgage deals you may be considering.

This is especially true when considering mortgage best buy tables which are now manipulated by mortgage lenders to place their mortgage deals at the top of the table by reducing the APR on the mortgage but a quick glance at the APRC figure will reveal the true cost of the mortgage after mortgage fees (which is where mortgage lenders stash the bulk of their profits in order to manipulate the mortgage best buy tables) are taken into account.

Since the Mortgage Credit Directive (MCD) rules came into effect, any mortgage product you are shown in the European Union must now show you the APRC- “Annual Percentage Rate of charge” as a standardised method of presenting mortgage quotes for home financing.

What does the APRC tell you about your mortgage?

The APRC tells you how much your mortgage will cost you each year, assuming you kept it for the full mortgage term which was originally agreed.

The APRC takes into account the initial mortgage rate you will pay on any initial deal and also takes into account the rate you will pay after the initial mortgage deal has finished.

The APRC also takes into account all associated mortgage fees( such as mortgage arrangement fees, mortgage booking fees, mortgage handling fees etc) and costs attached to the mortgage.

This means when comparing mortgage products with the APRC you will get an actual representation and like for like comparison for all mortgage products.

The APRC isn’t the only rate on display, in fact, it will be shown alongside other rates such as the initial fixed-rate etc.

This makes it very clear on what rates you will pay at each stage of a mortgage.

Example of an APRC

If you were to get a mortgage offer for with a 5 year fixed rate and then a standard variable rate for the rest of the mortgage term, you will see the initial rate for the first 5 years, as well as the standard variable rate which you will move onto when the 5 years fixed deal ends.

You will also see the APRC figure which takes into account both rates and allows you to compare other mortgages on the same parameters.

A real-life example of APRC in action:

If you want a mortgage of £120,000 and ou compare to fins such a mortgage and receive the below offers:

Mortgage 1 has an initial rate of 0.99% which is fixed for 2 years but later increases to an SVR of 4.99% for the remaining 23 years. It also has a mortgage fee of £2,366

Mortgage 2 has an initial rate of 1.39% which is fixed for 2 years but then moves to the mortgage lenders standard variable rate. It has no mortgage setup fees.

Without APRC it may be hard to work out which is the cheaper mortgage deal between these two but with APRC we can see that mortgage option 1 has an APRC of 4.5% and mortgage option2 has an APRC of 4.2% which makes it the cheaper option over the same term.

What is APRC2?

APRC2 is part of the mortgage credit directive. It requires mortgage lenders to include a second APRC in their key facts illustration or mortgage illustration document. This is also known as the ESIS (European Standardised Information Sheet). 

The ESIS, also known as the key facts illustration is a document that a mortgage lender must present to you when providing you with a mortgage offer.

APRC2 must be mentioned in the ESIS document whenever a mortgage offer has a variable rate(tracker or standard variable rate) at any point in the mortgage term.

The APRC2 is an illustrative example of the cost of the mortgage or loan using a 20-year high-interest rate, which can either be based on a benchmark rate provided by the Financial Conduct Authority (FCA), or on a relevant external reference rate.

Is the APRC relevant when choosing a mortgage?

The APRC is relevant when choosing a mortgage but only if you intend to keep the mortgage for the duration of the mortgage term. In reality, most people will switch the mortgage and move over to a cheaper mortgage rate after the initial introductory term is over.

With that in mind, the initial mortgage rate and the mortgage fees included may be more relevant when choosing a mortgage.

The downside of APRC?

The reality is that APRC doesn’t really solve the biggest problems most borrowers will face.

Most borrowers will constantly look to find the next best mortgage deal once their introductory period ends and APRC doesn’t allow them to get a true idea of what the total cost of constantly switching is over the 30 years they may pay off their mortgage.

This means if you intend to constantly switch mortgage rates when the introductory offer on your mortgage is over you should pay close attention to the mortgage fees which may rack up and end up costing you more than you may have initially imagined.

The early repayment charges are not taken into consideration and costs such as these could easily rack up when switching from one mortgage product to the other over a 25-year term.

APRC Calculator

 
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£
 
Interest Rate
%
 
Loan Term
£
10 years
Min 0
Max 40
 
years
 
Compounding per month
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Other Costs
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FAQs: What is APRC

What is the difference between APR and APRC?

APR is used for credit cards, personal loans and hire purchase agreements. APRC is used to compare mortgages and secured homeowner loans. APRC was introduced in March 2016 (before that APR was used for mortgages) and this is why not many people know the “APRC” term.

You will usually see APRC mentioned on mortgage best buy tables or any secured home loans.

What is included in the APRC?

ARPCincludes the interest rate on the mortgage as well as any future interest rate change. It also includes all mortgage fees and costs attached to the mortgage and gives you the cost of the mortgage if you were to keep the mortgage for the whole mortgage term. APRC does not take into account any early repayment charges.

In this brief guide, we answered the question “what is APRC?”. If you have any questions or comments please let us know.

John Bate

John has 22 years of experience in financial services. This spans across financial research, financial services (As a qualified mortgage broker and underwriter), financial trading and sales at global investment banks. While working as a publishing research analyst, he covered European bank credit and advised institutional clients on investment strategies at both JP Morgan and Societe Generale. John has passed all three levels of the CFA (Chartered Financial Analyst) programme.