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APR stands for annual percentage rate. Many banks these days display the APR alongside the interest rate for each mortgage deal. If they don't, you'll have to do the calculation manually.

You might think it'll be a headache, but luckily we devised this useful mortgage APR calculator for you to use. Simply feed in your numbers and out pops your APR.

Looking to have mortgage APR explained for you? This guide will tell you everything you need to know.


APR explained - what is it?

To make the difference clear from the outset: APR is not your interest rate.

APR is your interest rate plus a bunch of other costs, which have been factored into a standardized format to reflect the cost of taking out a mortgage.

So it's going to be higher than your interest rate, but gives you a more accurate idea of how much the loan will cost.

There are lots of things which could affect your interest rate, but the costs element of APR is made up of fixed fees, which are worked out as a percentage.


For example, the lender origination fee. This is often set at 1% of the overall price of the property you're buying. It's the fee you pay for the lender to process your mortgage application.

There are plenty of other fees that need to be factored in, including survey fees, any broker's fees, legal fees, and title transfer fees to have the property transferred into your name.

How can APR affect your mortgage?

In very simple terms, the higher your APR is, the more your mortgage will cost you in total.

However, because APR represents a bundle of costs - not just the interest charged for borrowing money - you do still need to take a closer look at the various fees.

Example APR Comparison

For example, you might be offered a mortgage APR of 3.5% which is comprised of a very low interest rate plus high upfront costs. Or you might have an APR of 4.5% which is made up of a slightly higher interest rate with very low upfront costs.

Depending on your situation, you might find that the second deal suits you more, despite the fact it'll cost you more in the long run. Everyone loves to save a bit of money on their mortgage, but you might not have the cash right then and there.

The second deal could allow you to afford a home you've fallen in love with, in exchange for paying more over the full term. So it might suit you better - though you need to carefully weigh up the financial outlay with the benefits.

What else do I need to know?

When looking through mortgage lender's websites, always bear in mind that the rates you see are not necessarily the rates you will get. Any change in the interest rate will affect APR too.

APR Pit Falls

You should also remember that APR is a useful tool for comparing costs across the whole length of the mortgage. If you move or pay it off before the end of the term, you might have to pay a second lot of fees and charges.

This makes APR a lot less relevant, and a lot less useful.

While it can be handy when shopping for deals, you should always take a closer look at the individual fees you're expected to pay. And consider when shopping how likely you are to stay in the home you're buying.

If it's a stepping stone to a larger property, and you're using it to build equity before moving on quite quickly, APR isn't going to be that useful.

It's only once you've taken into account these factors that you'll you know which deals are suitable for you.

Getting Approved

When looking at the mortgage market for deals, remember that all the APRs you see are dependent on you actually being accepted for the deal. Sadly, there's no guarantee that you will be.

The deals on lenders' websites will show rates based on certain assumptions.

For example, the rates might be based on you borrowing $200,000, at a certain loan-to-value (LTV) ratio. That ratio is worked out as the amount of your loan set against the value of the house.

You might be offered a more expensive rate - and a higher APR - if you don't fulfill their LTV criteria, or if you don't have a great credit score.

Give yourself the best chance by arming yourself with as much knowledge as possible, and doing your best to build up a great credit score before applying.

Avoid applying for credit in the lead-up to your application - some lenders will see this as a red flag. And make sure you always pay off your credit cards and any personal loans on time.

Go see what you can find - now you've had APR explained to you and you have a great mortgage APR calculator, we hope the world of mortgages makes far more sense.

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