This is because in the past the ‘interest rate’ quoted was just the rate the lender charged on your mortgage, and this often failed to include the hidden extras charged to you both up front when you took the loan out, and over the subsequent years.

Now, the APR is supposed to reflect both the interest on the loan, and the charges, over the full term of the mortgage.

For example, one two-year fixed rate flexible mortgage offered by a well-known high street lender at the moment states an interest rate of 6.99%, reverting after a two-year period to its Standard Variable Rate (currently 7.74%).

But the APR openly quoted by the lender on this 6.99% rate is 8% - so if you stay with them for the life of the mortgage then that is the rate you will pay over the whole term (normally between 20 and 25 years). The 6.99% is really just a sweetener to lure you in: the 8% is the real figure.

But there is one little sting in the tail you have missed. The formula for calculating APR does not include such things as mortgage indemnity premiums, cash back payments or redemption penalties - so in reality the APR figures quoted to you is a little misleading, particularly if you cash in your mortgage early.

So make your lender work harder for their money - ask what the overall APR is if you pay your mortgage off early - and ask them to include every single charge in their calculation.

Try Our APR Calculator