Explaining Annual Percentage Rate Charge (APRC)

Key takeaways

• APRC stands for ’annual percentage rate of charge’ and it's the rate of interest you'll pay over your mortgage term

• This was introduced by the Mortgage Credit Directive (MCD) to be more transparent and provide better protection for consumers

• Each lender and mortgage provider will set their own APRC by looking at a range of factors, including lending risks and the Bank of England's base rate

What is APRC?

APRC stands for ’annual percentage rate of charge’ and it’s something you’ll see on mortgage adverts and quotations, including MoneySuperMarket’s mortgage tables.

The APRC shows the rate you’ll effectively pay if you stick with this mortgage for its whole term. But many people are only interested in the two- or three-year deal, having the intention to remortgage again to avoid going onto the standard variable rate.

So, while the APRC can provide a useful guide as to how much you’d pay if you were never to change the terms of the deal, the initial rate is probably the one that is still the most important. This is especially true if you’re planning to remortgage once it finishes.

Why has APRC been introduced?

APRC was brought in courtesy of under the Mortgage Credit Directive (MCD) which is European legislation designed to create a more consistent and transparent market for mortgages and provide protection for consumers.

The purpose of APRC is to show you all the costs of your mortgage, including any broker fees. This way, you can see exactly how much you’ll be paying over the full term of the mortgage.

What is the difference between APRC and APR?

The acronym APR stands for ‘annual percentage rate’ and it’s pretty similar to the APRC. In fact, it’s a single figure that takes into account the interest rate, as well as any fees you’ll need to pay when you first borrow the money.

The main difference between APRC and APR is that the former offers you a more comprehensive picture of your plan, as it considers the fact that your interest rate will probably change in the long run.

As for the APR, this figure only shows you the initial – and possibly competitive – interest rate of the mortgage. So, the main reason for which it’s been replaced by the APRC is that, overall, the APR can be a bit misleading for the customer.

The pros and cons of using APRC

Pros of using APRC

• It includes interest and fees, so gives you a full picture of total borrowing costs

• It provides a simple measure for comparing mortgage deals across different lenders

• It will highlight the shortcomings of some deals, such as those with low interest rates but high fees

Cons of relying on APRC

• It assumes you will keep the same mortgage for the full term, which is not the reality for most

• It calculates cost beyond any initial fixed or tracker period using the lender's standard variable rate (SVR), which varies by lender and rarely reflects what borrowers actually end up paying

• It doesn’t show how a deal may be more affordable in the short term or how the costs may increase

How do I get a mortgage with low APRC?

There are many different factors that can determine whether you get a favourable APRC or not. For instance, having a good credit history will boost your chances of benefitting from a low APRC, as it shows that you’re a reliable borrower who keeps up with repayments. The size of your deposit will have an impact too.

In fact, the larger the deposit, the lower the interest rate you’ll be offered. This is because lenders will ‘trust’ you more, as you’ve already put down a significant amount of money towards buying your home.

Other aspects that may keep APRC down are how much you want to borrow and for how long. For example, opting for a shorter term can also help lower your APRC, as you'll be paying interest for less time. However, this will mean higher monthly repayments, so make sure you're able to afford them comfortably.

How do lenders set their APRC?

Each lender and mortgage provider will set their own APRC. To do this, they will take into consideration different factors, including the level of risk, how much it will cost them, and the market competition.

Not only that, but lenders are also likely to refer to the Bank of England’s base rate. While they are free to set their APRC to the percentage they wish, this base rate can act as a helpful, general guideline.

Our other useful guides

Should I fix my mortgage?

Understanding mortgage interest and how it is calculated

Compare mortgage options with MoneySuperMarket

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We’ll help you scour the market in search of the mortgage deal that is right for your pockets and requirements. Then, feel free to use our mortgage calculators to find out how much each deal would cost you overall.

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