May 31st, 2018 6:41 AM by Jackie A. Graves
looking to buy a home or already own, you're probably familiar with the terms
"Interest Rate" and "APR." They're both used when referring
to mortgage rates, but why are both quoted and what makes them different?
Knowing the difference is very important and could save you
thousands of dollars on your mortgage.
At the highest level:
The interest rate
is the cost of borrowing the principal loan amount.
The APR — or
Annual Percentage Rate — is a broader measure of borrowing and includes not
only the interest rate but also any other costs to get a loan such as discount
points, insurance and closing costs.
Quoting the APR became industry
practice as part of the Truth in Lending Act, a federal law passed in 1968 to
protect consumers by requiring the full disclosure of the terms and conditions
of finance charges in credit transactions.
Given the same interest rate, higher APRs indicate more
costs associated with obtaining a loan, including fees and points. Because of
this, it's important to shop around and get APRs from several lenders, allowing
you to compare all fees, apples–to–apples, and determine which lender is right
If you're focused on getting the lowest monthly payment, the
interest rate is likely the top priority for you. If your focus, however, is
the total cost of the loan over time, the APR may be your most valuable tool.
While looking at interest rates and the APR are important,
take some time to learn more about other important costs that
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