APRC explained

When looking at mortgages, you’re likely to come across different types of confusing jargon and acronyms, one of them being APRC.

This sounds similar to APR, but it's not the same thing. Here we take a look at exactly what APRC stands for, what it means and how it might impact your mortgage.

What is APRC?

APRC stands for the Annual Percentage Rate of Charge. It’s a percentage figure that shows you the total cost of your mortgage over the duration of the mortgage term.

The APRC is there to help you compare mortgages by giving you a single figure that considers all fees and interest rates across the whole mortgage.

When looking at mortgages, you’ll likely see 3 numbers:

• Initial interest rate - If you’re looking at fixed-rate mortgages this percentage rate shows you what your interest would be for the initial fixed period (usually between 2 and 5 years). This works like an introductory rate, so tends to be lower than the lender’s standard variable rate (SVR).
• Standard variable rate (SVR) - Once your introductory period ends, you’ll likely be moved onto the lender’s SVR. This tends to be higher than the fixed-period rate. And, unless you decide to remortgage, it usually stays the same throughout the rest of your mortgage term.
• Fees - Getting a mortgage often comes with an arrangement fee that can be added onto the total amount you borrow.

Working out which mortgage deal is right for you based on these 3 numbers can be confusing, that's why speaking to mortgage broker can help you make the right choice.

How is APRC calculated?

Let’s take a look at an example*.

Say you’re looking to get a 30-year repayment mortgage on a house worth £150,000.

You’ve got a £20,000 deposit, so the mortgage amount is £130,000. You’re looking at a 3-year fixed-rate mortgage.

Mortgage A has a fixed interest rate of 2.99%, which then moves onto an SVR of 4.94%. There’s a £250 arrangement fee.

Mortgage B has a fixed interest rate of 3.26%, moving onto an SVR of 4.34%. There’s an upfront fee of £1,499.

You might be tempted with mortgage A because it has a lower fixed interest rate and less to pay in fees.

But, over the course of the 30 years, mortgage A would cost you £218,026. Mortgage B would cost you £12,000 less at £205,829.

Here’s where APRC would be useful. Taking all fees and interest rates into account, mortgage A’s APRC would be 4.6%. Mortgage B’s APRC would be 4.2%.

*This example was created using Confused.com’s mortgage comparison service. It should be treated as an illustration only.

What's the difference between APRC and APR?

The main difference between them is that APRC looks at the fact that the interest rate is likely to change. This is why APRC tends to be used when looking at mortgages.

APR stands for annual percentage rate. APR is also a single figure that considers both the interest rate and any fees when you borrow money. But APR is something you see more commonly with personal loans and credit cards.

What’s the difference between APRC and interest rates?

Your interest rate is the percentage that the lender charges you for the privilege of borrowing the money.

In the case of loans and credit cards, there tends to be a single interest rate – the APR.

APRC takes all of these different interest rates, as well as any fees, to give you a single percentage.

Why do mortgage lenders use APRC

APRC was introduced the by the Financial Conduct Authority (FCA) in 2016 to ensure full transparency to borrowers on all of the costs involved in a mortgage deal.

Remember, a better mortgage rate does not mean an overall better mortgage deal. You must also consider the extra mortgage fees.

How do I get a mortgage with a low APRC?

You can shop around using our mortgage broker partner, Mojo Mortgages, to find mortgage deals with a low APRC. Mortgage lenders are required by law to show the APRC, so you can easily compare deals and find one that suits you.

The APRC you see when comparing deals might not be exactly the same as what you’re offered when you apply. This is because lenders take into account your circumstances when you apply for a mortgage, including things like your:

• Income
• Outgoings
• Credit rating

You can try and lower the interest rate by:

• Increasing the size of your deposit, and in turn your loan to value (LTV) ratio. Generally speaking, the larger your deposit, the less you have to borrow, so you could get better interest rates.
• Shortening your mortgage term. Having a shorter amount of time to repay the mortgage could give you a lower APRC. But you’re more likely to have higher monthly repayments as a result.
• Having a good credit score. It might be worth looking at how you can improve your credit rating. A better credit score helps lenders believe that you'll be more reliable with your repayments.

While these factors should help lower your mortgage interest rate, it may not always lower the APRC. This is because lenders could choose to charge a large fee, not lowering the APRC even if the interest rate had been lowered.

It's best to speak to an expert mortgage broker to understand which mortgage deal is best for you.

What our mortgage expert says:

"There's more to a mortgage than just the interest rate. So when comparing, keep an eye out for the APRC percentage. This includes all the different rates and fees involved in your deal, so it can be helpful when looking at different mortgages. If you're unsure, it's worth speaking to an expert at Mojo Mortgages who can offer you free mortgage advice, without the pressure of deciding right away"

Claire Flynn Mortgage expert