Mortgage basics
APR: How to read it and compare two loan offers without making a mistake
The APR brings together interest, file fees, guarantee, required insurance and intermediary fees. What it contains, what it ignores, how to compare.
The APR converts the full cost of the credit into an annual rate: interest, file fees, guarantee, insurance required by the bank and intermediary fees. Acquisition costs and notarial deed fees are not included. Two APRs can only be compared if the amount, the term, the guarantee and the insurance proportion are the same on both proposals; the total cost in euros then measures the difference.
By Sandy MASCART, mandataire d'intermédiaire en opérations de banque et en services de paiement ORIAS 26000541 sous le mandat de CDV PATRIMOINE & ASSURANCE (ORIAS 14005573)
Key points
- The APR brings together interest, file fees, guarantee, required insurance and intermediary fees; acquisition costs and notarial deed are excluded.
- Two APRs can only be compared if the amount, the term, the guarantee and the insurance proportion are aligned on both proposals.
- With identical fees, the gap between the advertised rate and the APR widens on a short-term or small-amount loan: fixed fees weigh on less interest.
- It is the APR, not the displayed nominal rate, that is compared to the usury threshold: a reasonable displayed rate does not rule out a refusal.
- On a loan sold before its term, the offer with the lowest initial fees may prevail, even with a slightly higher APR.
The APR aggregates everything the loan costs you: interest, administrative fees, security, required insurance, intermediary fees. Use it to distinguish between two loan offers on identical terms. See the basics of a mortgage.
What is the APR, in one sentence?
The total cost of your loan, expressed as an annual rate. The nominal rate measures only the interest.
Taux annuel effectif global
Le sigle TAEG est d'usage. Un document qui écrit encore « taux effectif global » ou « TEG » sur un crédit immobilier emploie une dénomination périmée : c'est un détail, mais il dit l'âge du modèle que l'on vous remet.
- En vigueur depuis le
- Source
- Article L. 314-3 du code de la consommation — Légifrance
You will find it on the simulation, the standardised information sheet and the loan offer.
What is included in the APR, and what is not
| Item | Included in the APR? | What to check |
|---|---|---|
| Loan interest | Yes | The nominal rate and its nature, fixed or variable |
| Bank administrative fees | Yes | The amount applied, after any negotiation |
| Required security: guarantee or mortgage | Yes | Which security was used for the calculation |
| Borrower insurance required by the bank | Yes | Which contract and which percentage were used for the calculation |
| Mortgage intermediary fees | Yes | That they are correctly included in the base, at the mandate amount |
| Fees for opening and maintaining a required account | Yes | If opening the account is a condition of the loan |
| Property valuation requested by the bank | Yes | If it is billed to you |
| Transfer duties and notary fees | No | They are budgeted separately |
| Penalties in case of default on your part | No | They are set out in the general terms and conditions |
Cela vaut pour les honoraires d'un mandataire comme pour ceux de tout autre intermédiaire : s'ils sont dus, ils doivent apparaître dans le calcul de la banque. Un TAEG qui les oublie est flatteur et faux.
- En vigueur depuis le
- Source
- Article R. 314-4 du code de la consommation — Légifrance
À ne pas confondre avec les frais de garantie — caution, hypothèque —, qui sont nécessaires pour obtenir le crédit et entrent donc dans le calcul.
- En vigueur depuis le
- Source
- Article R. 314-5 du code de la consommation — Légifrance
My fees: the fees page.
Why is the APR always higher than the advertised rate?
It adds the fees, on the date of each payment: fees paid on the first day carry more weight.
Calcul actuariel par méthode d'équivalence, intérêts composés
Le calcul est actuariel : il cherche le taux qui rend égales, date par date, la somme prêtée et la totalité de ce que vous versez. C'est ce qui permet de comparer deux échéanciers de formes différentes.
- En vigueur depuis le
- Source
- Article R. 314-3 du code de la consommation — Légifrance
The lowest nominal rate can have the highest APR: see the bank rate schedule.
How to compare two loan offers using the APR?
- Align the amount and the term.
- Align the security: a guarantee may be partially refunded.
- Align the insurance: policy and premium.
- Note the counter-conditions: domiciliation, other products.
- Compare the total cost in euros.
La différence entre deux taux annuels effectifs globaux : l'un calculé en supposant l'assurance intégralement exigée par le prêteur, l'autre en supposant qu'aucune assurance n'est exigée
Cette différence permet de comparer deux contrats d'assurance sans toucher au reste de l'offre.
- En vigueur depuis le
- Source
- Article R. 314-12 du code de la consommation — Légifrance
Isolate the insurance using the APR excluding insurance.
When the APR is no longer sufficient
- Early sale: the lowest initial fees may prevail.
- Variable rate: the APR is an assumption.
- Deferred payments, stepped payments, multiple loans: read the repayment schedule.
- Simulation: only the APR in the loan offer binds the bank.
What is the relationship between the APR and the usury rate?
It is the APR that is compared to the usury threshold. Fees and insurance can lead to a file being rejected.
Leverage: external insurance, different security, renegotiated fees. See the usury rate.
Comparable offers, in a single table
As a mortgage intermediary working under mandate, I do not set any interest rate. I request the offers on the same basis, I verify the calculation basis of each APR and I reread the loan offer, line by line. The documents.
Do you have two offers in hand? Create your file or have them compared by telephone.
Sources
Read next
- Mortgage in Lyon: frequently asked questions
- Understanding your loan offer: the twelve clauses to check before signing The twelve clauses of the loan offer, in the order of the document: what is negotiable, what the law caps, and the three points that cannot be rectified.
- The TAEA: the single figure that compares two insurance policies, and how to read it What the TAEA actually measures, why a premium rate is not one, and the three normalisations without which it compares nothing.
- Calculating the monthly repayment on a mortgage: the formula in six steps, and its blind spots Calculate the monthly repayment on your mortgage in six steps, then see what the formula omits: insurance, guarantee, fees, APR and usury.
- FISE: the only document that makes two loan offers truly comparable The FISE aligns two loan offers item by item. The reading order that avoids false discrepancies, and the three sections where the price is hidden.
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