Calculating Mortgage APRs

nau01179

Hi folks,
I can't get my head around how mortgage APRs are calculated. I know what they represent - the interest + mandatory fees but I can't figure out the maths behind them. Can some one explain?

Do quoted APRs apply to the entire mortgage or just the length of the advertised deal?

e.g.
HSBS 2 year fixed standard with 90% LTV (it's on their site but apparently I'm not allowed to post links )

That's a 2 year fixed mortgage@4.49% with a £599 booking fee. Then reverts to 3.94% SVR.

APR is given as 4.2% - how???

Thrugelmir

nau01179 wrote: »

APR is given as 4.2% - how???

On the basis that the interest rates as quoted remain the same over a 25 year period.

HappyMJ

Interest calculated daily and charged monthly will create some compound interest. If the monthly interest is 0.3287% per month then after a year a £100,000 loan assuming no payments were made would become £104,017. The other part might be interest on the booking fee or the booking fee itself. I wouldn't try and calculate it exactly...just look at the fees and the interest rate to compare to other products.

nau01179

So all APR values assume a 25 year mortgage?

That helps but I still can't see where 4.2% comes from. Can you show me the exact maths?

It also raises the question - what's the point? Surely a better figure to give would be the APR for the term of the deal - this would be more representative of what most people will pay.

Also unless I've missed something - the APR will be affected by the size of the mortgage - e.g. if 2 people take this same deal over the same term
one with a £20k mortgage and the other with a £200k. The APR for the 20K mortgage is going to be worse as the fee is a much higher percentage of the overall mortgage...