The APR (Annual Percentage Rate) is a way of levelling the playing field by providing a true comparison between different loans. It includes the cost of any “hidden” charges.
The resulting calculation shows you exactly what the loan will cost you every year over the length of the term.
So, say for example that there are two lenders with the same Headline Interest Rate for a 25 year loan.
One of them may force you to pay for a mandatory survey of your property every ten years. But they don’t exactly make it clear when you take out the loan. However the calculation of APR should include the cost of this.
The APR takes all the costs into account: things like the application fee, the mortgage lenders valuation and so on.
So don’t just look at the “Headline Interest Rate“. Ask the lender for the APR on a particular loan.
Oddly the best buy mortgage tables you’ll see in the press and on some websites often don’t mention the APR but focus instead only on the “headline interest rate”. When you start to add all the “arrangement fees” that the lender wants to charge you for the fantastic mortgage deal, suddenely it’s not such a great deal after all.
Simple answer: Ask “What exactly is the APR on your 2 year pink flamingo fantastico mortgage (or whatever they call it).
If the person in the call centre doesn’t give you a straight answer quickly, then tell them you think they are breaking the law and will be calling their local trading standards office. Good luck with getting their name…