Ok, I have read a number of the key posts on this forum, which have cleared up some things for me, but I am still pretty confused. I'm currently one year into a 35 year mortgage with BoI and am considering switching to another provider. I ended up with BoI as they were the only ones that would give me the mortgage amount I required for the property I was buying. I'm now noticing that their rates seem quite high in comparison to other lenders and am thinking that with the amount I could potentially save over time by switching, it might be worth the penalties applied to me to switch lender (on a variable rate, but i'd have to pay back the 1% stamp duty that BoI paid for me at the time of purchase).
One thing in particular is really making it difficult for me to compare mortgages - the APR. Despite reading the key posts I just don't get it. I'll try to illustrate with my personal example. BoI are currently offering me a variable rate of 4.5 % (or 4.6 % APR). The repayments are EUR 1231.50. They also offer a 1 year fixed of 3.7 %, with repayments of EUR 1108.77. But the APR is 4.5 %! This makes absolutely no sense to me. Unless there is a follow on rate from that 1 year fixed that is much higher than the LTV, how can the APR possibly be almost the same for both loans?!
According to Observer's post in the key post on APR
"APR and all that
The APR concept is relatively simple. Start with the basics: an APR of 10% means if I borrow £100, I repay exactly £110 exactly one year later. Thats why they call it ANNUAL PERCENTAGE RATE!"
Let's take my example:
1) 1 year variable rate of 4.5 % gives 12 repayments of EUR 1231.50 or EUR 14778 paid at the end of the year
2) 1 year fixed rate of 3.7 % gives 12 repayments of EUR 1108.77 or EUR 13305 paid at the end of the year
How does the APR fit into this? There is a clear discrepancy between the two amounts (nominal percentage rate) that does not tally with the APR. Does this mean that with the 1 year fixed i'm essentially paying less of the interest portion of the mortgage with the result that i'll end up paying a higher interest rate at a later date?
One thing in particular is really making it difficult for me to compare mortgages - the APR. Despite reading the key posts I just don't get it. I'll try to illustrate with my personal example. BoI are currently offering me a variable rate of 4.5 % (or 4.6 % APR). The repayments are EUR 1231.50. They also offer a 1 year fixed of 3.7 %, with repayments of EUR 1108.77. But the APR is 4.5 %! This makes absolutely no sense to me. Unless there is a follow on rate from that 1 year fixed that is much higher than the LTV, how can the APR possibly be almost the same for both loans?!
According to Observer's post in the key post on APR
"APR and all that
The APR concept is relatively simple. Start with the basics: an APR of 10% means if I borrow £100, I repay exactly £110 exactly one year later. Thats why they call it ANNUAL PERCENTAGE RATE!"
Let's take my example:
1) 1 year variable rate of 4.5 % gives 12 repayments of EUR 1231.50 or EUR 14778 paid at the end of the year
2) 1 year fixed rate of 3.7 % gives 12 repayments of EUR 1108.77 or EUR 13305 paid at the end of the year
How does the APR fit into this? There is a clear discrepancy between the two amounts (nominal percentage rate) that does not tally with the APR. Does this mean that with the 1 year fixed i'm essentially paying less of the interest portion of the mortgage with the result that i'll end up paying a higher interest rate at a later date?