First Direct Interest Rates

m0ns00n

Hi,

I'm hoping someone will be able to help me understand the differences between the Rate and APR quoted by First Direct (and presumably other lenders) on mortgages.

The main reason behind my question is to help me discover what the difference between a 10% and 25% deposit will cost me.

As an example, FD have the following 2 fixed rate repayment mortgages:

Mortgage: 2 year fixed repayment
Max LTV: 90%
Rate: 4.89%
Reverts to SVR: 3.69%
APR: 4.0%
Fees: None

Mortgage: 2 year fixed repayment
Max LTV: 75%
Rate: 3.99%
Reverts to SVR: 3.69%
APR: 3.8%
Fees: None


Looking at the APR, there wouldn't appear to be much in it (only 0.2%). However, looking at the actual rate, there is a much larger 0.9% difference.

There is a similar story when looking at the longer term fixes.

Would someone be able to explain why the APR is so similar, and what actual cost this would have to me? As a rough guide, I'd be looking for a property somewhere in the region of 180k to 200k.

Thanks,
m0ns00n

Gentoo365

APR (like AER) is a flawed attempt at making it possible to compare two financial products.

It does not work with very short term, or very long term products as the assumptions are unrealistic.

The reason that the rates are so similar are that the vast majority of the time you will be paying the SVR rate.

However this is clearly nonsense, firstly because the SVR will change during the life of the mortgage, secondly because you will probably re-mortgage.

Ignoring the possibility of investing the deposit you would probably be better taking the lower LTV product as you will be paying the interest on a lower balance. Also you will be able to re-mortgage to a better rate at the end of the term.

Also of course, a higher deposit means that you have a better chance of being accepted due to tough affordability criteria that First Direct seem to have.

You can probably do a KFI for both online and look at the 'total amount paid' figure and see the difference will be quite big.

Gentoo365

oh, and if you are a first time buyer then First Direct will probably be the best rate. HSBC have a target to lend a large amount to first time buyers this year so their rates are competitive.

m0ns00n

Thanks for the response Gentoo!

I actually already have a mortgage with First Direct, but we are thinking of moving in the next 1-2 years. I'd use them as an example as we are already with them.

I was trying to figure out if I should try saving that bit harder to make the 25% deposit. Looks like I probably should, as you are quite right that I wouldn't stay on the same deal for the full term of the mortgage!