3/17/2023
In your search for the ideal mortgage on Busconomico or on the web, you will come across some abbreviations you don't know. Although the APRC is very similar to the APR, which you may already know, they are different.
Here we show you what the APRC is in a loan or mortgage, how it is calculated and how it can help you make a better decision by comparing different products.
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What is the APRC?
The APRC (Annual Percentage Rate of Charge) corresponds to a percentage that shows you the annualized cost of a mortgage or a loan that has different interest rates during its repayment.
In this sense, it includes commissions and other charges that are calculated as if you never changed the credit conditions. But, unlike the annualized effective rate or APR, this indicator is calculated for the entire life of the loan and gives you a better idea of the long-term cost.
It is a data that lets you see more clearly what different providers offer with the same parameters. Although there are mortgages that start out cheap, when you calculate the long-term costs they can be more expensive.
When it comes to taking out a mortgage, this value allows you to more easily compare the offers you are most interested in. Within the analysis process to choose the most convenient mortgage loan, there are 3 key indicators:
- Initial interest rate. If you are thinking of applying for a fixed-rate mortgage, this percentage tells you what the interest rate will be for the term (between 2 and 5 years) during which your payments will not change. Since it functions as an introductory rate, it is usually lower than the lender's standard variable rate (SVR).
- Final or adjustable interest. In fixed rate loans, it is the interest that will be applied after the cheapest initial period (if any), in adjustable-rate mortgages it is the differential that will be applied on the indicator to which it is indexed.
- Fees. A personal loan or mortgage may have different fees, such as the origination fee, which will be added for the calculation of the APCR.
How is APCR calculated?
It is not uncommon for many banks to promote very attractive introductory rates. However, this offer is time-limited, after which you will move to more expensive monthly payments.
Within the APRC are the initial rate, the long-term rate and all contract fees. That's why it shows you what the mortgage would cost you each year if everything remained unchanged.
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To see how it's calculated, it's best to look at an example:
Let's say you want to get a 30-year mortgage loan for a home that costs $150,000. If you put $20,000 down, you have to repay a total of $130,000 over that term. Since you want a fixed 3-year term and there are 2 options that interest you, you have the following:
- Mortgage 1 has a fixed rate of 2.99% which then increases to an SVR of 4.94% and there is a $250 arrangement fee.
- Mortgage 2 includes a fixed rate of 3.26% that will change to an SVR of 4.34% and the upfront fee is $1,500.
At first glance, anyone would go for the first one because it looks cheaper. Although it seems like a simple decision, this mortgage loan will end up costing you $218,026. On the other hand, the second one will end up costing you $205,829.
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This is quick to see if you know the APRC of each, since in the first case it is 4.5% and in the second case it is 4.2%.
Differences between AER, APR and APRC
The banking products that give you money in installments have a terminology that you have to know well to distinguish concepts and to know their usefulness. Thus, you will often come across 3 basic abbreviations:
- AER. The annual percentage rate is used to compare savings accounts from different financial institutions. This value assumes that you are going to keep your money for at least one year, so it takes into account compound interest and the initial interest rate.
- APR. The annual percentage rate is very similar to the one we are dealing with and also serves to compare any type of financing. Within the calculation, it includes both the interest rate offered and the fees associated with the contract.
- APRC. The annual percentage rate of charge is especially indicated to compare mortgages and loans with different interest rates. This value tells you the average interest rate and fees included in an annualized format as if the terms of the loan were unchanged.
The APRC can be very helpful to know the final cost of a mortgage when you intend to honor the contract until it ends. If not, we suggest you take into account the introductory interest rate and prepayment fee to evaluate the mortgage you are looking for.
Español: ¿Qué es la APRC en un préstamo y cómo se calcula?