Guide to APRC on Mortgages

Mortgage offers include a lot of information, and some of it is designed to help you compare products consistently. One of the most important figures you’ll see is APRC (Annual Percentage Rate of Charge). If you’ve ever wondered why the APRC looks different to the interest rate you were quoted, or how a later rate affects it, this guide explains what’s behind it.

Related guides:

• Mortgage costs guide
• Fixed-rate mortgages
• Tracker mortgages explained
• Key Facts Illustration (KFI) and ESIS for remortgages

What is APRC on a mortgage?

APRC is a single percentage figure intended to represent the overall cost of the mortgage, expressed as an annual rate.

In practice, APRC is designed to reflect interest costs and, depending on the product and the way the lender calculates it, may also include certain fees/charges over the period used for the calculation.

It’s important to know that APRC is not a promise of what you will pay. It’s calculated using assumptions set out in the mortgage disclosure rules, so it’s best viewed as a standardised comparison tool. The purpose of APRC is to improve transparency when comparing mortgage offers with different rates and fees.

The assumptions behind APRC

When lenders calculate APRC for disclosure purposes, they typically assume things like:

• You keep the mortgage for the term initially shown
• You make the required payments on time
• You don’t make additional overpayments

Because the mortgage balance reduces as you repay capital, the interest cost profile changes over time. APRC combines the assumed costs over the mortgage term into one annual percentage.

How is APRC calculated?

APRC is calculated using the mortgage’s expected cashflows under the disclosure assumptions.

Two practical points often explain why APRC figures can look surprising:

1. Fees can affect the APRC

   • Some arrangement fees and other costs may be reflected in the calculation, depending on how they’re treated in the product.

2. Deal rates and rate changes affect the illustration

   • Many mortgages start with an introductory rate (for example, fixed or discounted). The APRC takes account of that rate and the assumed rate for later periods.

How a follow-on rate affects APRC

If your mortgage moves from an introductory rate to a lender’s Standard Variable Rate (SVR), the APRC illustration can be higher than the introductory rate because it includes the assumed rate outside the deal period.

Even if your mortgage is not on an SVR, a different product rate can change the cost illustrated in new mortgage documentation.

Where is APRC shown in mortgage documentation?

In the UK, lenders provide standardised pre-contract information for mortgages. The disclosure framework is based on the Mortgage Credit Directive (MCD) and is delivered through documents such as the European Standardised Information Sheet (ESIS).

The ESIS is designed to make it easier to understand and compare mortgage offers by presenting key information in a consistent format.

You’ll typically see APRC alongside other figures such as:

• The interest rate for the introductory period
• The term of the mortgage
• The repayment method (e.g., capital and interest)
• The total cost illustration over time

Fixed rate mortgages and APRC

With a fixed rate mortgage, the interest rate is set for a defined period. That generally makes the cost during the fixed term more straightforward to estimate.

However, lenders still need to show what happens after the fixed period. For example, the mortgage illustration may show rates and payments for:

• The fixed-rate period
• A later period when the mortgage is assumed to be on a different rate (often an SVR)

Because the lender’s future rate is not known with certainty, the later-period costs are an illustration based on assumptions.

Variable rate and tracker mortgages: what is APRC2?

For variable rate mortgages, particularly tracker mortgages, the interest rate can move over time. That makes it harder to calculate a single “true” APRC for the entire term.

To improve transparency, lenders may provide an additional illustrative APRC, sometimes referred to as APRC2.

Why APRC2 exists

APRC2 is intended to reflect a scenario where the interest rate changes, using assumptions required by the disclosure framework.

This can make APRC2 look significantly higher than the main APRC figure.

How to interpret APRC2

• Treat APRC2 as an illustration, not a prediction
• It may not match what happens in real life if interest rates move differently than assumed
• It can still be useful because it highlights how sensitive the mortgage cost could be to rate changes

What is a “good” APRC?

There isn’t a single “good” APRC figure that applies to everyone. A lower APRC is generally preferable, but the right figure depends on your circumstances and the specific product.

APRC can vary between borrowers because the mortgage pricing can reflect factors such as:

• Credit profile
• Loan-to-value (LTV)
• The product type and term
• Whether fees are included or treated differently

A useful way to think about APRC is as a consistent comparison metric between mortgages that are otherwise similar, rather than a universal benchmark.

Reading APRC in your mortgage offer

When you receive your mortgage documentation, it can help to approach it systematically:

1. Identify the introductory period

   • Note the interest rate that applies at the start.

2. Check the APRC alongside the rates across the term

   • Look for the APRC and the different rate periods used in the illustration.

3. If you see APRC2, treat it as an illustration

   • Consider it as a sensitivity check for variable-rate scenarios.

4. Compare like with like

   • Ensure you’re comparing the same term, repayment type, and key assumptions.

If any figure doesn’t make sense at first glance, it’s usually because APRC is based on assumptions and illustrations rather than a direct reflection of what will happen in every scenario.