We’d like to remind Forumites to please avoid political debate on the Forum.
This is to keep it a safe and useful space for MoneySaving discussions. Threads that are – or become – political in nature may be removed in line with the Forum’s rules. Thank you for your understanding.
📨 Have you signed up to the Forum's new Email Digest yet? Get a selection of trending threads sent straight to your inbox daily, weekly or monthly!
The Forum now has a brand new text editor, adding a bunch of handy features to use when creating posts. Read more in our how-to guide
APR's vs quoted rates
hobo28
Posts: 1,601 Forumite
Ok, I'm a little confused and I suppose since I have a mortgage I should have cleared this one up ages ago.
When you take a mortgage, there's often two interest rates quoted. A lower one then the APR. I always use the APR when comparing mortgages.
But say if I took on a 2 year discounted mortgage at 4.59% which then goes up to 5.25%, how is the APR then 5.4%? I'm using this as an example: (http://www.alliance-leicester.co.uk/mortgages/index.asp?page=fixed-rates&buyertype=ntb&ct=movinghome)
How do I work out what I actually pay during those 2 years? Do I use 4.59, 5.25 or 5.4?
If I choose one where there's no tie ins, would the effective rate be 4.59%?
You'd never guess I have an A level in maths!?!?!
When you take a mortgage, there's often two interest rates quoted. A lower one then the APR. I always use the APR when comparing mortgages.
But say if I took on a 2 year discounted mortgage at 4.59% which then goes up to 5.25%, how is the APR then 5.4%? I'm using this as an example: (http://www.alliance-leicester.co.uk/mortgages/index.asp?page=fixed-rates&buyertype=ntb&ct=movinghome)
How do I work out what I actually pay during those 2 years? Do I use 4.59, 5.25 or 5.4?
If I choose one where there's no tie ins, would the effective rate be 4.59%?
You'd never guess I have an A level in maths!?!?!
0
Comments
-
From memory, I think that the APR assumes that the loan will revert to the standard variable rate once the discount/fixed period has expired, and also has to reflect any compulsory fees (booking, valuation etc).
It strikes me, therefore, that the APR must be relevant to a particular amount borrowed as some of the fees are variable (ie you borrow £30k the APR will be higher than if you borrow £100k as an e.g. £600 valuation fee is 2% on one and 0.6% on the other); also it must be relevant to a certain period of mortgage (ie you borrow over 10 years the APR will be higher than if you borrow over 25 years as e.g. that £600 is dispersed across fewer repayments).I really must stop loafing and get back to work...0 -
Use one of the mortgage comparison sites such as https://www.moneyfacts.co.uk, which will tell you the total cost over your chosen timescale.hobo28 wrote:How do I work out what I actually pay during those 2 years?0 -
The APR on a loan is a figure calculated in accordance with the Consumer Credit Act of 1974 and is intended to be used for comparison purposes.
If you take a 25 year mortgage and keep to your contract then the APR is useful for comparison purposes.
If you take a short term offer and follow it with other short term offers then the quoted APR is of little use.
You really need a STAPR a Short Term Annual Percentage Rate which would be calculated using the methods for an APR but only for the period covered by your special offer.
So I would like to see both a STAPR and the full term APR quoted.
With an STAPR you would more easily be able to compare the mortgage lenders short term offers.
An arrangement fee of £399 would have a much greater impact on a STAPR
then it does when amortised over 25 years.
STAPR is not a commonly used term and has appeared "in print" for the very first time in this post although I have used it in financial conversations for several years................................I have put my clock back....... Kcolc ym0 -
No wish to rain on your parade Robert but there is a website HERE who use TIIR [true introductory interest rate] to compare mortgages - which is rather the same as your "world exclusive" STAPR idea, I believe.
Should you be about to campaign for the intro of STAPR, I prefare the other - less letters and easier to say!
I have no connection with the site BTW, just find it useful for comparing deals.
0 -
I had a quick look at the site.
I could not work out whether they did or did not rebate 50% of their commission if you used mortgage genie.
I did not find out what calculation they actually did.
However I will return to the site later and perhaps all will be revealed................................I have put my clock back....... Kcolc ym0 -
I have had another look at Mortgage Genie.
I made better progress this time.
They showed me their 10 "Best Buys" in one category.
Listed by lowest interest rate first etc
BM(solutions) 3.99% came first.
Listed using a more sophisticated Mortgage Genie approach
BM(Solutions) was ranked eighth................................I have put my clock back....... Kcolc ym0 -
I've noticed quite often that the "headline rate" best deals aren't actually best when fees are taken into account. Their TIIR, or your STAPR, would be a real boon to the customer if it had to be given as well as APR [which is pretty meaningless on short term deals].
Perhaps you should PM Martin with the idea? See if he could influence the FSA [or whoever] to make it requirement where a mortgage commences with a short term fixed, tracker, variable rate.0 -
I would not be so bold as to PM Martin................................I have put my clock back....... Kcolc ym0
-
Generally I make a similiar calculation to compare rates - but this is for my file purposes to back any recommendation , as one needs to be very careful in providing clients with information that may not be in a prescribed format
One also needs to take into account the effect of adding fees, and erosion over the selected period on a repayment mortgage for the different rates / methods of charged interest ( don't know if the site mentioned does / does not cover these points)Any posts on here are for information and discussion purposes only and shouldn't be seen as (financial) advice.0 -
I'm sure that's right, the point being that shouldn't something like that be a "prescribed format"?payless wrote: Generally I make a similiar calculation to compare rates - but this is for my file purposes to back any recommendation , as one needs to be very careful in providing clients with information that may not be in a prescribed format
APR was introduced to allow consumers a level playing field to compare rates across a range of loans because lenders had previously used different and [deliberately] confusing methods to describe them. APR, as far as I'm aware, still holds good for credit cards, personal loans, store cards, Hire Purchase, etc.
But the advent of short term introductory offers on mortgages and the likelyhood of more and more people switching to make use of these, makes APR on most mortgage quotes somewhat less useful than the proverbial chocolate fireguard!
Not many months ago Halifax had a really eye catching 4.29% fixed for 2yrs which was top of all the "best buy" tables but the fees of £600 meant that for all but the largest mortgages it was anything but. Isn't it time the FSA, supposedly protectors of the consumer, caught up with the fact that these great intro offers are allowing mortgage lenders to do what they did pre- Consumer Credit Act - bamboozle punters with low headline rates whilst whacking them with various charges!!
An intro rate APR would at least allow customers to know the true cost of burrowing during that period.0
This discussion has been closed.
Confirm your email address to Create Threads and Reply
Categories
- All Categories
- 354K Banking & Borrowing
- 254.3K Reduce Debt & Boost Income
- 455.3K Spending & Discounts
- 247K Work, Benefits & Business
- 603.6K Mortgages, Homes & Bills
- 178.3K Life & Family
- 261.1K Travel & Transport
- 1.5M Hobbies & Leisure
- 16.1K Discuss & Feedback
- 37.7K Read-Only Boards