Annual Percentage Rate (APR) | Property Terminology | Vesta Glossary

What is APR?

APR is the annual rate used to measure the total cost of borrowing money, including interest rates, arrangement fees and other associated costs. APR is expressed as a percentage and is typically used to help consumers compare products from different lenders.

What does APR stand for?

APR stands for Annual Percentage Rate. You will usually see APR advertised on any borrowing products such as loans, credit cards and mortgages. It is the official rate used for borrowing money and can be used to compare different credit and loan offers. All lenders are legally obliged to tell you what their APR is before you sign any agreements.

How is APR calculated?

APR is calculated by taking a number of variables into account. These include:

  • The annual interest rate of the loan
  • The term of the loan in years
  • The regularity of payments (normally per month)
  • Other fees – for mortgages, this could include arrangement fees, booking fees, valuation fees and mortgage broker fees 

Mortgage APRs

When it comes to mortgages, APR takes into account the interest rate of the mortgage plus any up-front fees or additional charges such as arrangement fees. 

While a nominal interest rate only refers to the interest charged on a mortgage, APR takes into account the nominal interest rate plus all extra costs involved in procuring the mortgage.

For example… 

If you take out a mortgage of £300,000 with an interest rate of 3%, your annual interest cost would be £6,000, or a monthly cost of £500. Now factor in the additional mortgage costs, which could total £3,000, and you will have a total mortgage cost of £303,000. 

Applying the 3% interest rate will then give you a new annual mortgage cost of £9,090. Calculating this new annual cost as a percentage of your original mortgage amount of £300,000 will give you your APR of 3.03%.

Points to remember with buy-to-lets

  • APR is not a perfect measure of the total cost of borrowing but it is a useful guide for comparing mortgage products.
  • An advertised APR is not guaranteed. The company may offer you a higher rate than the headline on account of your current financial circumstances. 
  • If you’re investing in a rental property, a buy-to-let mortgage calculator is great way to see your monthly mortgage payments, interest coverage ratio and stress test results.

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Investing in a buy-to-let property with tenants already in place (like most the properties listed at Vesta) ensures rental income from day one.

Important Note

All information contained in this website is provided as a guideline only, is based on estimates and assumptions, may not be accurate or complete, and is subject to change. We make no representations or warranties with regards to this information, expressed or otherwise. A buyer who relies on such information does so at their own risk. Buyers are advised to seek independent financial advice and should undertake their own due diligence.

Your capital is at risk. Property values may decline and the property might not be able to be rented at amounts sufficient to cover debt interest costs, operating expenses and liabilities, and might not result in a positive cash flow. Property is an illiquid asset and should not be viewed as a short-term investment.

In no event will we be liable for any loss or damage, including without limitation any loss or damage arising directly or indirectly out of or in connection with the use of this website and the information contained therein.

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