When applying for a mortgage or credit, there are two acronyms that you will hear frequently: TIN and APR. Knowing what each of them refers to is very important, because interpreting them correctly will avoid unpleasant surprises. To avoid this happening, you need to know the differences between TIN and APR and when to use each one.
What is the TIN?
The Nominal Interest Rate or NIR is the interest rate that the bank applies to a loan, without taking into account other associated costs, such as commissions.
In the case of a fixed-rate mortgage, the TIN will be the same at the start and at the end of the loan period. Whereas in the case of a variable-rate mortgage, it will change depending on the evolution of the Euribor.
The most important thing you need to know about the TIN is that this amount is not the sum of the total expenses that you will pay on the money borrowed, only the interest that the entity applies to the money it has lent you .
In this way, to know the total and final cost of a mortgage you must consult the APR (Annual Equivalent Rate), which is an interest rate that indicates, in the form of an annual percentage, the effective cost or return of a financial product, including in its calculation the nominal interest, some constitution costs (appraisal, notary, registration, taxes...) and bank fees (opening, study...).
What is the APR?
Although it has been slightly broken down in the previous point, the APR adds the TIN plus other expenses and commissions. Therefore, if you see that the TIN of a mortgage is 2%, that does not mean that this is the interest rate to be applied to the loan, but you should always look at the APR, since it is the one that includes the total expenses of the mortgage .
In Spain, it is mandatory for the APR to be displayed in the documentation and advertising of financial products. For variable mortgages, the APR will be calculated on the assumption that the interest rate and other costs will remain constant from the time of calculation. In this context, the bank must use the expression "variable APR" for information purposes.
That is to say, when calculating your mortgage, you should pay more attention to the APR than to the TIN, since it not only includes the interest applied by the bank, but also other types of expenses such as those related to commissions, fees or terms.
Key differences between NIR and APR
Therefore, despite their similarities, the TIN and APR present differences that the user must be clear about:
• Calculation . Unlike the APR, the NIR does not take into account any type of commission or expense associated with the transaction, only the interest rate applied by the bank.
• Cost . Because the APR takes into account more elements in its calculation than the TIN, the former will always be higher than the latter.
• Terms . The TIN can be set in different time formats (daily, weekly, monthly, quarterly, half-yearly or yearly), while the APR is expressed in annual terms. Therefore, before comparing them, it is important to convert the TIN into an annual parameter.
What should you look at, APR or TIN?
If you only need to compare the interest rates of several mortgages, the TIN is a good reference point. However, if you want to know the total cost of the loan, the most important thing to look at is the APR . With the APR, you can better compare between products with different terms or conditions.
However, the APR does not include certain costs , such as the notary, the agency or taxes, which are essential to calculate the total cost of a mortgage. Therefore, although the APR is a more complete measure, it is not perfect for making a definitive decision.
Additional factors that affect your mortgage
In addition to reviewing the TIN and the APR, there are other aspects that influence the cost of your mortgage, such as:
• Repayment period : The longer the loan term, the more interest you will pay.
• Linked products : Some banks offer to reduce the interest rate if you take out certain products, such as insurance or pension plans.
• Amortization systems : Most mortgages in Spain use the French amortization system , in which more interest is paid at the beginning than capital, which can influence your financial planning.
To make an informed decision about a mortgage or loan, it's critical to understand the differences between the APR and the NIR . The APR shows you what you'll pay in interest, but the APR reflects the true cost of the loan. Be sure to look at both and consider additional factors, such as repayment term and associated products, before choosing the best option for you.