What Is APRC on a Mortgage? How to Compare the Real Cost

APRC stands for Annual Percentage Rate of Charge. It is a standardised way of expressing the overall cost of a mortgage as an annual percentage, taking account of the interest rate and certain fees and charges.

It is useful because it puts more than the headline interest rate into one number. It is not, however, a forecast of exactly what your mortgage will cost if you switch deals before the end of the full mortgage term.

The FCA describes APRC as the total cost of the credit to the consumer expressed as an annual percentage. Mortgage illustrations use it to help borrowers compare offers.

A lower APRC can indicate a lower overall cost under the assumptions used in the calculation.

But you should also compare:

• the initial interest rate;
• the product fee;
• monthly payments;
• how long the initial deal lasts;
• the lender's reversion rate after that period;
• early repayment charges; and
• the cost over the period you realistically expect to keep the deal.

If you expect to remortgage when a two- or five-year fix ends, the APRC alone may not tell you which deal is cheapest over those two or five years.

The APRC converts the mortgage's expected costs into one annualised percentage.

Under the FCA's mortgage rules, the calculation can include:

• interest;
• one-off costs that form part of the total cost of credit;
• regular costs that must be paid for the mortgage; and
• certain account or payment costs where opening or maintaining that account is compulsory to obtain the credit on the advertised terms.

It is designed to make mortgage offers more comparable than a headline rate alone.

For example, a 4.5% mortgage with a large fee may not be cheaper than a 4.7% mortgage with no fee. APRC tries to reflect more of that difference.

Our guide on mortgage fees explains the charges that can sit around the headline rate.

Most mortgage deals have more than one pricing period.

A typical fixed mortgage might have:

1. a fixed rate for two or five years; then
2. the lender's standard or follow-on variable rate for the remaining term unless you switch again.

The APRC calculation looks beyond only the introductory period.

That means a mortgage advertised at 4.5% might show an APRC above 6% if the illustration assumes the borrower later spends a long period on a much higher reversion rate.

That does not mean your first-year interest rate is 6%.

It means the standardised calculation is incorporating the wider assumed cost path.

Imagine two 25-year mortgages for the same loan amount.

Deal A

• initial rate: 4.40%
• fixed for: 2 years
• product fee: £1,499
• reversion rate after the fix: higher variable rate

Deal B

• initial rate: 4.60%
• fixed for: 2 years
• product fee: £0
• reversion rate: similar

Deal A has the lower initial rate, but the fee may outweigh the interest saving over only two years.

If both illustrations assume the borrower then stays on the reversion rate for another 23 years, APRC will also be heavily influenced by that long assumed period.

This is why you should compare both:

the standardised APRC and the actual cost over the period you expect to keep the mortgage product.

Our guide on comparing two mortgage deals properly shows how to do the second calculation.

The precise calculation is governed by FCA rules.

Depending on the mortgage and its conditions, the illustration can include costs such as:

• interest;
• product or arrangement fees;
• compulsory account costs;
• certain payment-related costs; and
• other charges the rules require to be included.

Not every cost connected with buying a home is necessarily part of the APRC.

For example, the FCA's standardised mortgage information allows the lender to identify costs that are not known to it and therefore are not included.

That is why APRC does not replace a full buying-cost budget.

This is the most important limitation.

The APRC is calculated using assumptions about how the mortgage behaves over time.

Where the rate can vary, the actual APRC can turn out differently if the interest rate changes.

Where part of the mortgage is fixed for only an initial period, the standardised illustration can make assumptions about the rate applying after that period.

The FCA's European Standardised Information Sheet wording specifically warns that the actual APRC can differ where variable rates change.

So APRC is a comparison measure, not a guaranteed lifetime return-to-the-penny calculation.

Suppose you plan to:

• take a five-year fix;
• review the mortgage near the end of year five; and
• switch again rather than remain on the lender's reversion rate for 20 years.

The APRC can still be useful as a standardised comparison, but it may give a lot of weight to costs you do not expect to incur for long.

For that borrower, a more practical comparison is often:

payments + product fees + other relevant charges over five years + remaining balance after five years.

You should still look at APRC. Just do not mistake it for the only useful cost measure.

If your current deal is approaching its end, see when to start looking for a remortgage.

They answer different questions.

A mortgage can have a lower rate but a higher cost over your chosen period because of fees.

A mortgage can also have a lower APRC but still be unsuitable because of early repayment charges or a product term that does not fit your plans.

Some mortgage illustrations can show an additional or illustrative APRC where the mortgage is exposed to interest-rate risk.

The FCA's standard mortgage-information wording allows an example of how the APRC could increase if a variable rate rises.

This is not a second rate you automatically pay.

It is a risk illustration designed to show that the standard APRC is based on assumptions and that variable-rate borrowing can become more expensive.

If you see APRC2 on an illustration, read the wording beside it rather than treating it as another product rate.

No.

It means the mortgage has the lowest APRC among the offers being compared under their respective calculation assumptions.

That does not automatically make it the right mortgage for your circumstances.

A borrower planning to move in two years may care heavily about early repayment charges.

A borrower with very little spare cash may prefer a fee-free deal even if another option has a marginally lower long-run APRC.

A borrower who expects to keep the mortgage for decades may give more weight to the lifetime-style comparison.

Cost is one part of suitability.

Adding a fee to the mortgage avoids paying it upfront, but it means the fee becomes part of the amount on which interest can be charged.

If you add £999 to a long mortgage term and leave it there, the eventual cost is more than £999.

When comparing deals, calculate the fee consistently:

• either treat it as an upfront cost; or
• include it in the loan and account for the interest.

Do not compare one mortgage with the fee paid upfront and another with the fee ignored because it was added to the balance.

When looking at the APRC, also find:

1. the initial rate;
2. the initial deal end date;
3. the rate that follows;
4. the product fee;
5. other compulsory fees;
6. monthly payment during the initial period;
7. payment shown after the initial period;
8. early repayment charges;
9. overpayment rules; and
10. any additional APRC or rate-risk warning.

That gives the APRC context.

Browse all our mortgage guides.

• FCA Handbook — APRC definition
• FCA Handbook — MCOB 10A APRC calculation
• FCA Handbook — MCOB 5A mortgage information
• MoneyHelper — Understanding mortgages and interest rates

Related: How to Compare Two Mortgage Deals | Mortgage Fees Explained | When to Start Looking for a Remortgage.