Question : What is the difference between a mortgage APR and Interest Rate?
My mortgage interest rate is 6.875% and the APR is 7.504% Does the APR of 7.504% sound right if the interest rate is 6.875% ? My mom said that the 2 numbers should be closer together than that. Also, my mortgage banker never even mentioned an APR, and since we are 1st time home buyer's, we were unaware of it. We only knew about the Interest Rate. Thanks for the help.
- asked by Olivia
All Answers:
Answer #1
The Annual Percentage Rate is intended to assistyou in determining the true cost of the loan overits entire life, usually 30 years. If yourefinance your loan or sell the home before theend of the term, your true APR would be higherthan that originally provided. Your monthlypayment will be based on the stated rate, and theAPR takes into account the payment of points,origination fees, prepaid interest and PMI (ifrequired), among others. The APR shown inadvertisements is based on certain assumptions,such as loan amount and a down payment of at least20%. The APR on your specific loan will bedifferent than the advertised APR. In addition,lenders may calculate the APR differently, and, asa result, it can be very misleading. APRcalculations for Adjustable Rate loans are furthercomplicated by assumptions used in estimating arate of interest after the initial fixed period.Our advice is to obtain all fees in dollars and,for adjustable rate loans, know how the new ratewill be determined once the fixed rate period isover (i.e. caps, index and margin). This approachallows you to compare loans in terms that are moreeasily understood.
- answered by Gregorio
Answer #2
The APR takes into account the fees you are payingto get the loan so your mother is right, if thelender is charging you less fees, then the APRwill be closer to the Interest rate. I don't knowwhat kind of loan you are getting, but both therate and fees seem high for a conventional loan -if you have credit issues that would make a littlemore sense, but I encourage you to make sure youknow all of your options.Always get a secondopinion, and here is place where you can get one -
http://www.mortgagezapper.com
- answered by Anthony
Answer #3
Annual Percentage Rate (APR) is an expression ofthe effective interest rate that the borrower willpay on a loan, taking into account one-time feesand standardizing the way the rate is expressed.In other words the APR is the total cost of creditto the consumer, expressed as an annual percentageof the amount of credit granted. APR is intendedto make it easier to compare lenders and loanoptions.The APR is likely to differ from the "noterate" or "headline rate" advertised by the lender,due to the addition of other fees that may need tobe included in the APR. Therefore, the APR is away for you to compare companies against oneanother based on that difference from the noterate/interest rate to the APR rate. If you've gotone company giving you 6.875 with a 7.5 APR andanother at 6.875 with 7.1, you're getting a betterdeal with the second.Good luck.
- answered by achievablemortgages
Answer #4
Mortgage APR is the annual cost of a mortgage,including the interest, the mortage insurance, andthe expressed as a percentage fees of its originsor initial fees.
- answered by bobb
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