If you’ve looked for a mortgage in the last few years, you may have noticed that APRC is everywhere. While it’s only one letter away from APR, APRC is quite different.
What is mortgage APRC?
APRC stands for Annual Percentage Rate of Charge. It shows you the total cost of a mortgage, including fees, over the entire term (usually 25 to 30 years).
APRC is designed to make it easier and safer to compare mortgages – though in practice, if you regularly remortgage (and potentially save thousands of pounds by doing so), APRC might not be that useful to you.
For example, let’s take a two-year fixed rate mortgage with an introductory rate of 1.99%, and then the lender’s standard variable rate (SVR) of 4.19% for the next 23 years of repayments. After including a booking fee of £999, the APRC works out at 3.7%.
Why do mortgage lenders use APRC?
The UK’s money watchdog, the FCA, issued a directive in 2016 that required lenders, brokers, and comparison sites to display the APRC.
Because there’s such a huge difference between the introductory rate (around 1.5 to 2.5% today) and the lender’s standard variable rate (usually 4 to 5%), the FCA hoped that the APRC would give borrowers a more realistic view of how much interest they would pay on their mortgage.
The overall goal, especially when combined with the stringent affordability checks that all lenders must perform, is to ensure that you don’t end up with a mortgage that you can’t afford to repay.
APRC and remortgaging: Watch out for fees!
The APRC is based on the total term of a mortgage – usually 25 or 30 years. If you grab a two-year fixed rate mortgage at 1.99%, and then remortgage after two years to another competitive offer, then you’ll never pay the lender’s SVR and the APRC hasn’t offered much assistance.
APRC only really matters if you stick with your mortgage and never switch – but because your lender’s SVR is so high, you should almost always switch to a new mortgage when your promotional interest rate runs out.
One thing you should consider when remortgaging, however, is fees. Many mortgages come with a product or arrangement fee of £1,000 or more. If you switch mortgages every two or three years, those fees add up. In some cases, it’s cheaper to pick a fee-free mortgage, even if the interest rate is higher. Our guide on when you should remortgage your home has more details on choosing the right mortgage.
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