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Guide for Smart Buyers: Understanding Annual Percentage Rate

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Guide for Smart Buyers: Understanding Annual Percentage Rate

It is important to understand all aspects of a transaction, including the annual percentage rate (APR) for a mortgage. In Estonia, as in many other countries, when purchasing real estate, people often turn to banks and credit institutions to obtain a mortgage. The annual percentage rate represents the total cost of the loan to the borrower, expressed as a percentage annually.

How to calculate the annual percentage rate?

First, it is necessary to understand that the annual percentage rate takes into account not only the interest rate on the loan itself, but also all associated expenses - bank fees, insurance, property appraisal fees, and so on. In Estonia, the regulation and calculation of the annual percentage rate are carried out in accordance with EU directives.

Calculating the annual percentage rate can be complex due to various factors. However, there is a universal formula for determining it:

APR (annual percentage rate) = [(total loan costs / loan amount) / number of years] × 100

Total loan costs include all payments for the entire loan period.


Let's say you take out a mortgage of 100,000 euros for 30 years with a fixed monthly payment of 500 euros and a total amount of all fees of 5,000 euros.

  • The total loan costs will be: Monthly payment * number of months + total fee amount (500 * 360) + 5,000 = 185,000 euros
  • Now let's use the formula: APR = [(185,000 / 100,000) / 30] × 100 = (1.85 / 30) × 100 ≈ 6.17%

Thus, the annual percentage rate will be approximately 6.17%.

Using online calculators

There are many tools available online for calculating the annual percentage rate, which can greatly simplify this process. You just need to enter all the necessary dаta: loan amount, monthly payment amount, loan term, and other expenses.

What to consider?

Do not forget that the conditions for different mortgage products can vary significantly. Important factors include:

  • Fixed or variable interest rate;
  • Size of the down payment;
  • Loan term;
  • Possibility of early repayment without penalties.

That is why it is necessary to carefully study all the conditions of the offered loan product before signing the agreement.


Having a clear understanding of the annual percentage rate will help you accurately assess the overall cost of the purchased real estate. Do not hesitate to ask questions to your banking consultant and use available online tools to double-check calculations. Proper calculation ensures a more informed approach when choosing the most advantageous mortgage offer in Estonia.

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