| The annualised percentage rate of interest
(apr) is the rate of interest on any loan calculated
as interest paid per unit of the principal still outstanding, expressed
as an annual rate. An example of this is if the interest on a loan is
2% per month where no repayments are made, the apr is 26.8% rather then
24%. In the uk lenders are required by law to reveal the apr
on loans, mortgages and credit cards to borrowers.
The problem with apr is that there is a growing trend for early repayment
on mortgages which has rendered the current annual percentage
rate measure inefficient and unhelpful to consumers, leaving
borrowers with no real way to compare mortgages. The problem being the
apr is based on a maturity term of 25-30 years whereas
the average mortgage term now is around four years with one in three existing
mortgages being remortgages as borrowers take advantage of the many offers
and deals available. So when looking at a mortgage one should compare
the cost of a mortgage over different time periods factoring in all payments,
incentives and charges including early redemption penalties.
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