What is APRC in Mortgages, by Matt Stevens
If you’re hoping to purchase a property soon and have started to do some research, it’s likely you keep seeing the abbreviation “APRC”. This will be on almost every web page, document, and leaflet you read concerning taking out a loan to buy a home.
To ensure you make the best possible decision when investing in a property, it’s important that you fully understand what this stands for, what it means, and how it can affect the overall cost of your home.
Here at The Mortgage Genie, we have a team of expert mortgage brokers who can help you to find the ideal mortgage product to suit your needs. And, they’ll also help you to consider all of the different factors you need to take into account to ensure you’re getting the best deal possible. But, we know you’ll also want to do plenty of your own research, which is why we’ve put together this guide to APRC, which outlines everything you need to know about this important detail. We’ll cover:
- What does APRC stand for and what is its meaning?
- How is APRC calculated?
- What does APRC mean for me when applying for a mortgage?
- How helpful is APRC for comparing the overall costs of mortgages?
- What’s the difference between APRC, APR and AER?
- How can you find a loan with low APRC?
Read on to find out more!
What does APRC stand for and what is its meaning?
APRC stands for “annual percentage rate of charge”. It’s designed to show you the annual cost of a mortgage. It will combine all of the different interest rates, fees, and charges, allowing you to see how much you can expect to pay over the full term of your chosen loan if you never change it.
As a result, APRC can help you to compare different mortgages and work out which one is actually going to provide you with the best deal. For instance, while some home loans might have a low interest rate, the charges associated with them can actually make them more expensive than other options on the market. By paying attention to APRC, you can get the full picture of what you’ll be paying and what the best choice will be.
How is APRC calculated?
When you first take out a mortgage, your lender will usually offer you a particularly attractive introductory rate, which will last for a set period of time — the longest typically being 10 years. Once you reach the end of your fixed rate period, you’ll then be moved onto your mortgage provider’s standard variable rate, which is usually a lot higher.
When calculating the APRC of your mortgage, both your introductory and long-term interest rate will be taken into account. Plus, any additional fees you’ll be expected to pay will be included. The APRC of the loan will then be calculated as a percentage to give you an idea of the likely lifetime cost of it. This assumes you’ll keep the same mortgage until it’s paid off completely, although a lot of homeowners do prefer to remortgage once their fixed rate period comes to an end, as this can keep costs down significantly.
What does APRC mean for me when applying for a mortgage?
The APRC of the loan you take out can greatly affect how much it will cost you over the lifetime of your mortgage, as well as your monthly repayments. So, it’s well worth paying attention to.
When you’re looking at multiple mortgage products, it can be difficult to do all of the necessary calculations and ensure you’re making the best choice for your financial situation, though. So, to ensure you make the best decision possible, it’s a good idea to speak to a mortgage broker who’s well-versed in doing all of the maths needed to identify the best deal.
How helpful is APRC for comparing the overall costs of mortgages?
How helpful APRC is for helping you compare different mortgages completely depends on your plans. This is because the calculations used to work out a loan’s APRC assume that you will keep the same mortgage until it’s paid off and that the associated interest rates won’t change.
However, like a lot of other people who have purchased a property, you might decide to switch mortgages once your fixed rate term comes to an end a few years after taking your loan out, or you might move house completely. The initial APRC calculations that are carried out won’t account for any of this. Essentially, if you plan to remortgage to get a better deal or you aren’t planning on staying in your property for long, the initial rate you’re able to secure when you first take out your loan will be the most important.
APRC can still be a helpful tool for comparing different loans, but the best choice for you will still depend on your personal situation and how you plan to manage your mortgage going forward.
What’s the difference between APRC, APR, and AER?
Some of the other abbreviations you might come across when shopping around for financial products are APR and AER.
APR stands for annual percentage rate and it offers you a way to compare different loans or lines of credit in a similar way to APRC. It takes into account both the interest rate associated with your loan and the fees you’ll incur each year for borrowing. It’s a factor you’ll need to consider when taking out personal loans, credit cards, or hire purchase agreements, rather than a mortgage.
On the other hand, AER stands for annual equivalent rate, which can be used to compare different savings accounts. It’s calculated by assuming you’re planning to put your savings away for a whole year and it allows you to work out the compound interest plus any bonus introductory rates you can enjoy.
How can you find a loan with low APRC?
As you might expect, the APRC of the mortgages you have access to will depend on a range of factors, from how dependable of a borrower you appear to the state of the market at the time. Here are the main considerations you’ll be able to influence and how you can give yourself the best chance of securing a home loan with a low APRC:
- Your credit report: As you’re likely aware, mortgage providers will always check out your credit report when you apply for a loan. This is to determine whether they think you’ll be reliable with your repayments. To get a mortgage with the lowest possible APRC, you’ll need a very good credit rating and history. But it’s not impossible to buy a property if you’ve had financial problems in the past — you may simply need to apply for a bad credit mortgage, which will typically be more expensive.
- The amount you wish to borrow: Generally speaking, the more you’re looking to borrow, the lower the APRC will be. However, you still need to borrow within your means in order to have your application accepted and ensure you can afford the necessary repayments. So, you won’t want to borrow more just to secure a lower rate.
- The length of your mortgage: A typical mortgage is 25 years long, but some have shorter or longer terms. Of course, if you extend the amount of time you’ll be repaying your loan for, this will reduce the monthly repayments. However, this can drive up the overall cost of your loan as you’ll be paying interest for longer. The best approach is to borrow as little as possible and pay it back as quickly as possible (just be aware that you’ll want to avoid early repayment fees if these will drive the overall cost of your loan up significantly).
- The size of your deposit: The amount of money you can pay upfront for your home will have a huge impact on the interest rates you have access to. Essentially, the bigger your mortgage deposit, the lower your interest rates will be. For more information about this, but sure to read our guide to mortgage interest rates.
Essentially, to put yourself in the best possible position to take out an affordable loan, you’ll want to keep your credit score strong, save up a large deposit, and borrow just the right amount to suit your needs.
In advance of any progress with the mortgage front, we suggest reviewing your Credit File. The easiest way to do this is by using our free tool - Check My File. It's free for the first 30 days, but you can cancel at any time once you've downloaded your report.
We hope you now have a much better idea of what APRC is, how it relates to taking out a mortgage, and what you’ll need to consider when looking for the perfect loan to suit your needs.
If you would like any further support with buying a property, our mortgage brokers are here for you! Give us a call on 033 33 44 33 72 now — we would love to help you invest in the property of your dreams!