The mortgage and the differences: how is it calculated?

3 May

The APR of the loan is the global annual effective rate , an indicator of the cost of the loan, which includes the interest plus ancillary expenses . A mortgage is a loan from a bank or other credit institution for the acquisition or renovation of a property. The borrower must then recognize the bank a certain interest rate, expressed as a percentage of the loaned capital. Usually, the interests are one of the most important aspects to consider when comparing the financing among them and the convenience is calculated. We must therefore be able to distinguish between the APR and the TAN .

The nominal annual rate and is the rate that is applied to any financing

financing money

So when you hear about “zero interest loans”, it is the TAN that is referred to. Also in the case of mortgages, the TAN is expressed as a percentage to be paid to the bank, calculated on the total of the loaned capital. The detail to be taken into consideration is that this will not be the only payment the borrower will have to make.

In fact, the opening of a mortgage, in addition to the recognition of interest to the bank, also includes other expenses, which could be overshadowed. For this reason the APR is an interest rate that adds to the TAN all the accessory expenses necessary for the subscription of a mortgage. This rate is calculated on an annual basis and will naturally be higher than the TAN. Given its conformation, the APR is therefore a better indicator of the total cost of the loan (interest + ancillary costs) than the TAN, and therefore it is always good to use it to compare the different loans.

The expenses that are counted in the APR are:

  • the interests;
  • the cost of the preliminary investigation;
  • the cost of opening the file;
  • the expenses for the collection of the installments;
  • the costs for compulsory insurance, such as the outbreak and fire policy, and for those required for the opening of certain types of contract;
  • the remuneration paid to a credit intermediary who facilitated the financing;
  • tax charges, such as stamp duty.

Notary fees are not calculated within the mortgage 

Notary fees are not calculated within the mortgage 

However, there are many online simulation tools of this rate, which allow you to get a result by entering some easy-to-find information such as the amount of the loan, the duration of the loan, the value of the initial and periodic expenses, and the interest rate .