Interest rates vs APR?

M

MJC

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I am a first time buyer.

Apologies if this has already been addressed on this site, but can anyone set me straight on the difference between interest rates and APR.

I’ve also been told that APR is the more important of the figures to consider when deciding on a mortgage, but how does it affect repayments?

1 year fixed rate with AIB – an interest rate of 3.19% and APR of 3.75%

Compare this with 1 year fixed with EBS – an interest rate of 4.15% and APR of 3.7%

Plainly AIB wins on repayments over the first year, so is the APR more a long term rate?

[FONT=&quot]Thanks[/FONT]
 
Probably has been covered, but anyway the APR for fixed rate is worked out as actual cost for fixed period, 1 year in your case, and average cost for remaining years of mortgage assuming todays rate of interest for standard variable mortgage, all divided by total number of years in your mortgage.

Since your fixed period, like most, is shorter than the variable period that leads to the APR figure being closer to the current standard variable rate than the rate during the fixed period. So for example 1 year at an 4.15 and 19 years at 3.6, would probably have an APR of around 3.7.

At least this is what I think I can remember of an answer to a similar question in a newspaper, I'm open to correction. The banks have to work out the APR this way though it would be clearer to present it as APR for fixed period as 4.2, unfixed period as 3.65, and would also expose any extra charges in either period.

If EBS APR is 3.7 and AIB is 3.75, it just means the right now the EBS has a lower standard variable mortgage than AIB, if you plan to come off the fixed rate and go to a tracker rate instead of the standard variable then the quoted APR figure is even less useful.
 
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