Can anybody explain how to compare mortgage rates vs APR?

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ohlegmacnole

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I've searched far & wide on the internet for an answer to this but am still confused.

When comparing rates from different mortgage providers, should one compare listed rates or APR?

For example (these are real current rates),
BOI (LTV <= 60%) Variable rate=3.9 APR=4.0.
1 yr fixed Rate=3.6 APR=3.9

Versus,
KBC (LTV <= 60% & current A/C discount) Variable rate=3.5 APR=3.56.
1 yr fixed Rate=3.3 APR=4.27.

In this example the KBC 1 yr fixed has the lowest rate but the highest APR.
Can anybody explain how to interpret this & where the best deal lies?
Thanks
 
As I understand it, the APR quoted is to assume that after the fixed period, the mortgage moves on to the bank's standard viarable rate. So the higher APR at KBC would indicate that their SVR, after the fixed period, is higher and while you'd save in the first year, it would cost you longer-term...
 
Completely ignore APR when looking at fixed rates.

But you should be completely ignoring fixed rates anyway. This is not the time to fix.

And you should be ignoring KBC and BoI as well as they do not pass on rate cuts to existing customers.

Brendan
 
I kind of agree with ignoring APRs, compare the CPT (cost per thousand), ask the lender what their cost per thousand is on each rate, this is the actual amount you are going to be paying per month.
 
Thanks for all the replies.

@rob oyle, this makes the most sense to me but are you correct?

@Brendan,
Brendan Burgess said:
Completely ignore APR when looking at fixed rates.

But you should be completely ignoring fixed rates anyway. This is not the time to fix.

And you should be ignoring KBC and BoI as well as they do not pass on rate cuts to existing customers.

Brendan
Click to expand...

I don't understand why I should be ignoring fixed rates.
I'm currently on variable of 4.5% with BOI, so it doesn't make any sense to stick with that rate when I could fix for 1 yr at 3.6% without even moving provider.

@Paid,
I had already seen the consumerhelp.ie info but it doesn't clear it up for me really.
 
ohlegmacnole said:
In this example the KBC 1 yr fixed has the lowest rate but the highest APR.
Can anybody explain how to interpret this & where the best deal lies?
Click to expand...

In my view, you would have to calculate the total cost to you for the fixed year and for an amount of subsequent years on the SVR.

If you pick a 5 or 10 year period and work out how much KBC & BOI would cost each year over that term you can compare what each is costing. I would be using the APR to work that out.

It is much more complicated to work it out using the SVR rate. My bank calculates the interest (using the SVR rate) for the coming month and charges it daily. The day the mortgage is taken is an interest free day (12 of these a year). I would have to work out what the balance would be at the start of each month, calculate the interest rate for the days in that month, etc. and do that for the whole year.
 
There is a variety of rate types used, APR rates , IIR rates, fixed rates, SVR rates..

The one understandable constant is the cost per 1,000 borrowed each month.(as per Monbretia)

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If you are saving .9% ,it makes sense to take it.
After 1 year I assume BOI will give you the then hopefully better SVR rate and won,t hit you for extra charges.
 
The OP asked

ohlegmacnole said:
I've searched far & wide on the internet for an answer to this but am still confused.

When comparing rates from different mortgage providers, should one compare listed rates or APR?
Click to expand...

The simple answer to this question is that one should compare APRs.

Lenders can and do publish interest rates calculated in different ways. The APR is calculated on a legally defined basis and so can be compared across lenders. It can be used to compare mortgages over different terms, it doesn't matter if the loan is 20 years or 30, years the APRs can be compared.

So the BOI variable rate mortgage with an APR of 4% can be compared with the KBC variable rate mortgage with an APR of 3.56%

The cost per thousand per month absolutely cannot be used to compare mortgages of different lengths.

A fixed rate mortgage is a different product from a variable rate mortgage, there is a good thread on Fixed vs Variable here http://www.askaboutmoney.com/threads/fixed-or-variable-rate.173594/#post-1444158. but again, to compare fixed rate mortgages the APR is the correct basis for comparison. Although it does not reflect issues around the fixed term, neither can any other rate comparison method.


ohlegmacnole said:
BOI

(LTV <= 60%)

1 yr fixed Rate=3.6 APR=3.9

Versus,

KBC (LTV <= 60% & current A/C discount)

1 yr fixed Rate=3.3 APR=4.27.

In this example the KBC 1 yr fixed has the lowest rate but the highest APR.
Can anybody explain how to interpret this & where the best deal lies?
Thanks
Click to expand...

BOI and KBC are obviously calculating the Rate in a different way, the basis of calculation for the APR should be the same. The lower Rate=3.3 with KBC may be misleading
 
Thanks again for all the replies.
Although there seems to be some conflicting advice above, from my reading & understanding of it, it seems that one should use APR when comparing variable rates.

I'm not sure if that still holds when comparing fixed rates & comparing fixed vs variable.
I suspect that in those situations, one might have to work out the total cost over the duration of the loan to accurately compare.
 
Creemeg.

Over say 25 years,i agree it would not be accurate to use cost per 1,000 per month.

In reality all rates will fluctuate and a window of say 5 years is long enough to compare.
Would I therefore be wrong in saying that it is largely fair to just check cost per 1,000 per month?

What might I be missing ?
 
I still think CPT is a good indicator for comparing like with like day one, no one knows what the long term will bring and it can't possibly be predicted so knowing what the APR is now based on a 20/30 yr term means nothing in reality and assumes you will stay the whole term with the same lender, it's just an indication like the warning on every investment product etc etc.
 
A mortgage over 25 years at 4% APR has a cost per thousand of €5.24

A mortgage over 20 years at 3.56% APR has a cost per thousand of €5.80

If you think that the first is cheaper than the second you are wrong.

It makes no difference weather you keep the mortgage for the full term or just a month, the lower APR is cheaper. You are paying less for the time value of the money borrowed.

The financial regulation system in this country may have made grievous mistakes, but it did define the APR and force the banks to publish it. This was a significant advance on the previous system where the banks could magically make up their own method to calculate the interest rate. Cost per thousand is at best a back of the envelope method that may have some use when comparing otherwise identical products but can seriously mislead you if there are any differences in the products being compared.
 
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