Mortgage Approval letter has 2 rates in it?

B

Bigfoot

Registered User
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63
Hi,
Just got my letter of approval for mortage from bank. Went for 1 yr fixed @ 2.55% which is stated on the form. However further down the form is has APR - 3.5%. On querying this I am told that "when associated costs (life cover, house insurance) are added I would have paid 3.5% when everything is added up over the 12 months"
I'm not getting my life cover or house insurance through the bank so I don't really understand this at all?
Am I missing something obvious here?
Thanks
 
Is it not 2.55% for the first year only (preferential rate to attract customers) and 3.5% for all the remaining years?
 
Well the guy in the mortgage centre says it's the total amount when the various insurance costs are added in?
 
Perhaps 2.55% is the nominal rate (for year one only) while 3.50% is the APR based on the overall loan size, nominal rate, term, method of calculating interest etc.? I'm not sure that the explanation that you were given is meaningful since I'm not aware that the cost of life assurance, house insurance etc. (if you were getting them in the first place) would be subsumed into the APR calculation. However things like how the interest is calculated (e.g. daily, monthly, annually etc.), discounted rate periods etc. can have an impact on the ultimate APR for a particular nominal rate. Put yor questions to them again, in writing if necessary, and don't give up until you get a satisfactory answer.
 
Life cover and house insurance have nothing to do with mortgage APR.
other that required to get mortgage protection as a minimum.

Premium for life cover depends on age/smoker/etc....basically down to the individual details. Mortgage APR is same for everybody regarless if you are smoker or not for insantance.
So, how could "life cover" be bundle in mortgage APR?
 
bacchus said:
So, how could "life cover" be bundle in mortgage APR?
Click to expand...
Yeah - as I mentioned above I suspect that this is wrong and that the person who said this doesn't really understand APR at all. APR can be tricky to understand but that seems like a very basic misunderstanding.
 
Thanks,

We've questioned it again. I am confused by the APR but I would have hoped the mortgage guy would have understood it...

Will let you know what he comes back with this time
 
Bigfoot,

Have a look at http://www.homeloans.ie/ for instance. It has a Mortgage Type table showing "current rate" (like your 2.55%) and the APR ( like your 3.5%).

So, your letter specifies the "current rate" as well as the APR... but again nothing to do with life cover/insurance...and looks like the guy you talked to in the bank needs training.
 
I remember a few years ago a Minister insisting that in the case of a first year discount
on a mortgage, that the APR be over the lifetime of the loan to make clear that the
rate you have is for the first year only.
I know that they have no way of knowing what the rate will be next year, but it was
supposed to stop mortgage companies using their first year discount to sound cheaper
in advertising.
 
huskerdu said:
I remember a few years ago a Minister insisting that in the case of a first year discount
on a mortgage, that the APR be over the lifetime of the loan to make clear that the
rate you have is for the first year only.
Click to expand...
I think that they are obliged to do this.

I know that they have no way of knowing what the rate will be next year, but it was
supposed to stop mortgage companies using their first year discount to sound cheaper
in advertising.
Click to expand...
Yes - but they are supposed to quote the year two rate based on currently prevailing rates as far as I know.

One year new business discounted rates are a bit dodgy though because newcomers to the housebuying process can indeed be mislead by them and existing customers have to foot the bill for this new business discount. I'd be happy to see them outlawed but on the other hand ... caveat emptor.
 
Looks like the APR quoted is the current rate so! Surprising he doesn't seem to know that.

I don't feel I'm being mislead by this rate, I know that i'll be paying at a higher rate in the years to come but want the security of this in the first year as will be doing a bit of work to the house and need my finances in order.
 
A guy in work is buying a property and he had the same question. The APR should have a term beside it (APR over 20 years or something, right?) so it is the APR over the whole life of the loan. I took this as meaning the actual APR of the remaining 19 years is actually higher than 3.5% because the first year is discounted and all 20 years make up the 3.5% figure, now the guy in work is happy to dive in for the discount and switch in a year, is this as easy as he thinks though? Do the institutions not have a trick up their sleeve to prevent this with ease?
 
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