To compare mortgage offers, you can rely on the APR or annual percentage rate. If you want to learn more about this rate, please read on. The Nexity group provides you with all the information you need to know about the APR: definition of the APR, wear rate, contestation of the APR, sanctions that can be imposed on banks, etc.
WHAT IS THE TAG?
Formerly known as the TEG (annual percentage rate), the APR (annual percentage rate) is an important element of a loan offer. If you wish to take out a mortgage to invest in new or old property, you must consult this rate to find out the total cost of your loan.
The APR does not essentially include the interest on the loan.
The annual percentage rate of charge is also made up of all the costs essential to obtaining your mortgage, namely:
- Application fee
- Costs related to the intervention of an intermediary such as a broker
- Borrower insurance
- The cost of mandatory guarantees (deposit, etc.)
- Costs relating to the valuation of the property
- Costs related to opening an account are essential to obtaining your mortgage
If the APR must include all the fees you must pay to take out your mortgage, it does not take into account the elements that are not necessary to obtain your loan, such as:
- Optional insurance
- Notary fees
- Additional interest applied following a breach of the loan contract
The broad contours of the APR are defined in the Consumer Code. Any bank must include this rate in credit offers (mortgage and consumer credit). Failure to do so may result in heavy penalties.
Good to know
The APR replaced the TEG in 2016. The mention of this rate in credit offers (mortgage and consumer credit) became mandatory after the transposition of the MCD directive.
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WHAT IS THE WEAR RATE
Apart from the obligation to mention the APR in their credit offers, banks cannot apply a global effective annual rate higher than the usury rate.
The usury rate can be defined as the maximum rate that a credit institution can apply for its loan offers. It is different depending on the nature of the loan (mortgage, revolving credit, etc.) and its calculation is carried out by the Banque de France each quarter.
Good to know
After each calculation of the wear rate, the Banque de France publishes the new update in the Official Journal. This rate is governed by the Consumer Code and the Monetary and Financial Code.
Although banks must mention the APR in their credit offers, it is always advisable to calculate the annual percentage rate of each credit that you plan to take out to make comparisons, but also to check if the loan complies with applicable law.
To calculate the APR of a home loan, you must first estimate all the expenses necessary for the subscription of the contract: loan interest, compulsory insurance, administration fees, etc.
Then, you just have to add up the different costs, to evaluate their share in the amount you plan to borrow for the financing of your future property and add the result to the credit interest rate, to calculate the APR.
If you plan to borrow €20,000 over one year at a rate of 4%, you must therefore pay €20,800 with interest.
In addition to the interest, you must, for example, pay an additional €200 corresponding to the various costs necessary for the subscription. These fees represent 1% of the amount borrowed and must therefore be added to the interest rate to calculate the annual percentage rate of charge: 4% + 1% = 5%.
Good to know
The calculation of the APR of a mortgage with a duration of several years can be relatively complex.
In general, you just need to apply the following formula to calculate the annual percentage rate of charge:
(Total amount repaid – Loan amount / Loan amount) x 12 / Loan amount
HOW CAN I CHALLENGE THE APR?
As mentioned above, credit institutions are required to display the APR of their loan offers. If your bank has not displayed the APR of your mortgage or if you have identified errors after calculating the annual percentage rate of charge, know that you are entitled to take legal action within 5 years.
According to case law, the five-year prescription begins from the day you identified the error in the APR of your mortgage.
If your banker has omitted to mention the rate, the limitation period begins from the date of signature of your mortgage loan agreement.
EXCEEDING THE WEAR RATE OR ABSENCE OF APR: PENALTIES
Exceeding the wear rate or the absence of APR in your mortgage contract exposes your banker to civil and criminal penalties.
If you have noticed an overrun of the rate of wear following the calculation of the annual effective annual rate, a prison term of 2 years accompanied by a fine of €300,000 may be pronounced by the judge, according to article L. 341-50 of the Consumer Code.
In addition, the excessive perceptions carried out by your bank are imputed on the normal interests of the loan. If you have repaid your mortgage in full, the amount illegitimately received must be returned by the credit institution with interest fixed at the legal rate, according to article L.341-48 of the Consumer Code and Article L.313-4 of the Monetary and Financial Code.
Regarding errors or omissions of the annual percentage rate, article L.341-49 of the Consumer Code provides for a fine of around €150,000.
Depending on the situation and the damage suffered, the judge can also order the forfeiture of the right to interest or the substitution of the interest rate mentioned in your mortgage loan agreement by the legal interest rate.
Good to know
Forfeiture of interest and substitution is applied retroactively. As a general rule, the judge sets the date for the application of these sanctions at the earliest date.
On the other hand, the forfeiture of the right to interest may be total or partial. In other words, the magistrate can decide to remove all or part of the interest rate set by your banker.
What is the TAEG?
APR stands for Annual Percentage Rate. It replaced the TEG (total effective rate) in 2016 and allows you to accurately estimate the total cost of a mortgage.
The APR must be mentioned in any credit offer and can be useful for comparing loans.
What are the components of TAEG?
The APR is made up of the interest rate and the various costs necessary for your subscription to a mortgage:
- Compulsory insurance
- Application fees
- Costs related to the intervention of an intermediary, etc.
- The APR does not take into account the costs not essential to the subscription such as:
- Optional insurance
- Notary fees, etc.
What is the wear rate?
The usury rate is in a way the rate that banks must not exceed in setting up their credit offer. It is important to know the applicable wear rate for the mortgage you wish to take out, to check if there is a possible overrun.
How to calculate the APR?
For a loan lasting one year, the calculation of the APR can be done by adding all the costs essential to the subscription and by estimating the percentage of these about the amount you plan to borrow.
Then, you just have to add this percentage to the interest rate of the credit to obtain the annual effective annual rate.
Here is the formula to use for the calculation of the APR:
(Total amount reimbursed – Amount of the loan / Amount of the loan) x 12 / Amount of the loan
Why calculate the APR?
The calculation of the APR is first of all essential to evaluate the cost of different mortgages to which you can subscribe.
The calculation of the APR is also necessary to check for any errors in this rate and overruns.
Can we dispute an APR?
If you notice errors or an overrun of the rate of wear after having calculated the APR, you can seize the competent court.
You can also take legal action if your banker failed to mention the APR in your mortgage loan contract.
What are the penalties in the event of the absence of the APR or an overrun of the wear rate?
If the calculation of the APR of your mortgage has demonstrated that the rate of wear and tear has been exceeded, civil and criminal penalties may be imposed:
- Imprisonment of 2 years and 300,000 € fine
- Excessive levies charged against normal loan interest
- Restitution of amounts illegitimately received with interest
On the other hand, if the calculation of the APR has demonstrated errors or if the annual percentage rate of charge has not been mentioned in your contract, the credit institution is liable to penalties such as:
- A fine of €150,000
- Forfeiture of the right to interest
- The substitution of the interest rate of the contract by the legal interest rate