January 26th, 2018 12:26 PM by Jackie A. Graves, President
APR versus interest rate: What's the difference? If you’re
applying for a mortgage,
these are two financial terms you need to understand. APR stands for
"annual percentage rate," or the amount of interest on your total
loan that you'll pay annually over the life of the loan. It's slightly
different from the interest rate, which is the cost you'll pay
each day based on your mortgage balance.
terms might be foreign to you, especially if this is your first time buying a home. But don’t worry—we’ll break down
what each one is so that you’re ready to be a savvy mortgage shopper. Let's
first start by discussing the mortgage interest rate.
put, the interest rate is the cost you will pay each day the
borrowed money is owed, expressed as a percentage rate. In other words, “it
does not reflect fees or any other charges you may have to pay for the loan,”
Titsworth, regional manager of PNC Mortgage in Pittsburgh.
put, the interest rate is the
cost you will pay each day the borrowed money is owed, expressed as a
percentage rate. In other words, “it does not reflect fees or any other charges
you may have to pay for the loan,” says Staci Titsworth,
regional manager of PNC Mortgage in Pittsburgh.
Interest is calculated as a per diem (per day) figure
based on the borrower's current outstanding mortgage balance. This means that
every month you pay back a portion of the principal (the amount you’ve
borrowed) plus the interest accrued for the month. Your mortgage lender will
use an amortization formula to create a payment schedule that
reflects your principal and interest on the loan.
gas prices, mortgage rates can fluctuate from day to day depending on changes
in housing market conditions, says Jack Guttentag, author
of "The Mortgage Encyclopedia." But even saving a fraction of a
percent on your interest rate can save you thousands of dollars over the life
of your mortgage.
key factors affect your interest rate:
are costs to obtaining a mortgage, says Jordan Dobbs, a loan
officer at Washington First Mortgage in Rockville, MD. In a nutshell, Dobbs
says, an APR is a broad measure of the cost to you of borrowing money,
expressed as a percentage rate. It determines the total amount you pay annually
over the life of the loan.
APR includes the interest rate offered on your mortgage, as well as discount points, mortgage origination fees, and other costs associated with
obtaining a loan, it is usually higher—often 0.20% to 0.25% greater—than the
interest rate. So, in general, the higher your APR, the higher your payments
are over the life of your home loan.
“it’s important to check both interest rate and APR when looking for a
mortgage,” says Dobbs. If you’ve applied for a mortgage and received a good-faith
estimate from a lender, you can find the interest rate on Page
1 under “Loan Terms,” and the APR on Page 3 under “Comparisons,” according to
the Consumer Financial Protection Bureau.
tip: When lenders advertise APRs, they offer the rates under ideal
conditions—meaning rates apply to borrowers with excellent credit and
spotless documentation. Depending on your circumstances, the rates can be
lenders that offer low APRs often require high upfront fees; their points
requirements, origination fees, and insurance payments might be unusually high
in order to justify their lower rates.
more smart financial news and advice, head over to MarketWatch.
Daniel Bortz - To view the original article click here