CML looks at new mortgage loan rate measure, DAR

21 September 2007
The CML has published research that looks at new ways of presenting information on loan costs to make mortgages clearer and easier for customers to understand.

It believes that new interest rate measure DAR (dynamic annual rate), could be more effective than the current measure, APR (annual percentage rate), which is the standard measure for comparing loan costs.

Director general, Michael Coogan, said: "The dynamic annual rate provides a useful basis for discussion on the ways mortgage lenders can make consumer information as comprehensive, accessible and meaningful as possible.”

DAR is calculated over any period of time for which the loan may be kept and takes into account all payments and charges over the period for which the mortgage is held.

By contrast, APR is calculated on the assumption that loans will be held until maturity. However, as the majority of mortgages are repaid within a few years at present, it means that APR information may not represent actual loan costs.

It has been suggested that DAR could help borrowers to see how future changes in interest rates might affect the cost of mortgage products, and show when remortgaging could be a viable option.

"The DAR itself does not provide all the answers, but it is a useful measure for consumers who are uncertain about how long they will hold their mortgages, and the intermediaries who advise them," said Mr Coogan.

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