Understanding APRC: The True Cost of Your Second Mortgage Explained

When comparing your second mortgage offers, you'll often see two key figures: the interest rate and APRC. While the interest rate may appear to be the most important number, the APRC on the other hand, tells a more complete story regarding what you’ll actually pay.

Understanding APRC is vital if you wish to make an informed decision about your second charge mortgage.

What is APRC?

APRC stands for annual percentage rate of charge. It’s a calculation that indicates the total cost of borrowing money over its entire term, represented as an annual percentage rate.

Unlike interest rates, which simply show the cost of borrowing money as a percentage of the total amount, APRC includes all the costs associated with your second mortgage. This means it accounts for the interest rate itself, plus any fees or any additional charges. For example, these may include valuation fees, legal fees or arrangement fees.

In essence, APRC highlights the true cost of your second mortgage expressed as a single, comparable figure.

Why is APRC Important for Second Mortgages?

Interest rates can become confusing at times, especially when you’re comparing two mortgages across different lenders. Just because two mortgages may have the same interest rate, this does not mean they also share the same overall cost.

For example, you might be offered a second charge mortgage at a 5% interest rate, however, if this is accompanied by a £2,000 arrangement fee, this increases the true cost of borrowing higher than what the interest rate discloses. As a result, the APRC calculation includes these fees in the total cost of borrowing, revealing the real amount you will pay.

This is particularly important when you’re raising capital for home improvements or debt consolidation, for example. The real value in the APRC is that it allows you to accurately compare offers fairly across our panel of over 600 loan products, ensuring you’re well informed and equipped to make a decision on your second charge loan. 

How is APRC Calculated?

APRC is calculated by adding up the total fees, and additional expenses with the proposed interest rate. This calculation assumes equal payment structure throughout the term of the lending agreement and that no early repayments would be made. It also factors in the timing of when fees are charged, as this affects the overall cost.

While you do not need to calculate APRC yourself, lenders must provide this by law. This ultimately helps you to understand exactly what you are paying for in your second mortgage arrangement and allows you to make the best decision possible.

How to Use APRC When Comparing Second Mortgages

When you’re comparing second charge mortgage offers, the APRC should be one of your top decision-making tools.

Begin by collecting figures from multiple lenders for the same loan and term. Because APRC figures include all costs, comparing these figures gives you a true picture of which deal is genuinely the most suited to your needs.

However, don’t just rely on APRC alone. Consider other factors too, such as whether the interest rate is fixed or variable, how long the interest rate is fixed for, any early repayment penalties and, crucially, how quickly you can access the funds.

At The Second Mortgage Company, we can help provide funding in just three to four weeks. Overall, the importance of APRC in your second mortgage decision truly depends on your needs and requirements.

Making an Informed Decision

Understanding APRC empowers you to make better decisions regarding your second mortgage. It strips away any confusion and reveals the true cost of borrowing from each lender.

When applying for a second charge mortgage, use APRC alongside each offer’s interest rate to make an informed decision. Use these figures to compare offers across our extensive panel of trusted banks and specialist second charge mortgage lenders.

Our CeMAP-qualified advisors are very experienced in navigating the second charge mortgage industry. They will take into account your financial situation and establish whether a standard variable rate svr, or fixed rates may be more appropriate.

They will carry out a full income and expenditure assessment to ensure that you can afford the proposed monthly payment. Affording the monthly repayments is essential; otherwise, you may lose your home due to non-payment.

We will search our panel of lenders to find a second charge loan that best suits your requirements.

Once you have submitted your application, you will be allocated to an experienced loan processor, who will share loan details for your consideration. Whether you’re raising capital for home improvements, consolidating debt, such as credit cards, or funding other purposes, we'll help you find the perfect second charge mortgage for needs.

All mortgage brokers will consider what type of loan to offer you. It maybe that depending on how much you want to borrow, a personal loan is a good idea. Or, it might be better to keep your existing mortgage and explore second mortgage products with second charge lenders.

One benefit of taking out a second charge APRC mortgage is that you would avoid early repayment charges by leaving your existing first mortgage in place.

For more information about second mortgages, understanding APRC and the costs involved, contact our expert team today.