Mortgage initial rates, follow-on rates and APRC

Find out how to compare mortgage deals, taking into account the initial rate, follow-on rate, APRC and fees.

Key points

  • Mortgage rates can be confusing as you’ll usually see an initial rate, a follow-on rate and an APRC quoted
  • If you want to switch to a better deal during the life of your mortgage, you need to look beyond the APRC. The APRC alone is unlikely to find you the right deal
  • A mortgage adviser can help to do the maths

Comparing mortgages can be confusing.

When you compare other credit products, such as a loan, you’ll usually be shown the interest rate as an annual percentage rate (APR).

The APR is a percentage that expresses the annual cost of the loan, including any fees or other costs.

For example, a £10,000 loan with 5% APR, will charge £500 in interest and other costs each year for the duration of the loan.

This makes it simple to compare products, as you just need to look for the lowest APR.

But mortgages are different.

When you look at mortgage rates, you’ll be confronted with three different figures, the initial deal rate, the follow-on rate and the annual percentage rate of charge (APRC).

It’s important that you know what these different rates mean and which are the most helpful as you search for the best deal. Try our mortgage calculator

Initial mortgage rate

When you take out a mortgage or remortgage to a new product, you’ll usually sign up for an initial deal period at a fixed rate or a variable rate, such as a tracker or discount product.

These deals are for a set length of time. Two-year and five-year deals are the most common, but three-year, 10-year and other length deals are also available.

The interest rate quoted for the initial period only applies during this time and doesn’t include any fees.

Follow-on mortgage rate

Once your initial mortgage rate ends, you’ll usually be moved onto your lender’s standard variable rate (SVR), sometimes referred to as the follow-on rate.

If the follow-on rate is higher than the initial deal rate, this means your monthly repayments will increase.

Speaking to a mortgage adviser before the initial deal ends can help you compare mortgages and switch to a new deal.

Annual percentage rate of charge (APRC)

The APRC is designed to help consumers compare mortgage deals on a level playing field.

It takes into account the initial rate, all fees and charges and the follow-on rate.

It then calculates a percentage which tells you how much the mortgage would cost you each year if you were to stick with the same product until your mortgage is fully repaid.

However, this means it’s of limited use for many mortgage customers, as most people won’t stay with the same mortgage product or provider for the full life of the loan.

In fact, it’s a good idea to compare deals each time your initial rate comes to an end and switch to a more competitive deal if necessary.

How do I find the best mortgage deal?

To work out the best mortgage deal, you should compare the rate during the initial term, but don’t forget to take the fees into account.

Chatting with a mortgage adviser will help you calculate the cost of the initial deal (plus fees) to work out which products offer you the best value.

There’s not just the rate to consider, either.

Make sure you think about what type of mortgage will be most suitable for your situation and what length of deal is appropriate for you, be that two years or 10 years.

Look into whether features like the ability to overpay your mortgage or switch deals without penalty are important to you.

Consider whether a product that can be ‘ported’ if you choose to move house would be appropriate, too.

A mortgage adviser will be able to guide you towards products that fit both your situation now and your future plans, while offering you the best value.

By Derri Dunn