Mortgages seemingly have their own language, and knowing what the terms mean can make a significant difference in how you understand your loan and the associated costs. Often, APR is confused with interest rates on loans and while they are similar, there are differences that can add up.
An interest rate is the value of a loan to you, the borrower. It’s expressed as a percentage rate of the overall loan amount. For example, if your outstanding principle on a loan is $150,000, the interest you’ll pay is a percentage of that principle. As your principle decreases, your interest rate will stay the same, but you’ll be paying less interest because your principle is less. On adjustable rate mortgages, the interest rates change depending on factors in the financial market. Buyers will need to take the interest rate into account to determine their budget
Annual Percentage Rate (APR)
A loan’s APR is the annual percentage rate. This is the loan’s interest rate plus certain fees that may be incurred. Those fees can be things such as closing costs, loan origination fees or even mortgage insurance. When considering the cost of a loan, buyers will need to consider the APR.
When deciding on a lender, knowing their interest rates and APR are important, and both will be used when determining which loan is best for you. If you’re in the market for a new home, we can help. Our loan specialist will work with you every step of the way. You can apply online
or call to speak with a loan specialist to get started.