Mortgage Loan Rate Vs Apr

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Mortgage loan rate vs apr. Apr is the annual cost of a loan to a borrower including fees. Loan a has a higher interest rate 4 25 and lower fees 3 000 while loan b has a lower interest rate 4 and higher fees 5 000 because you could pay 2 000 to buy 1 discount. The apr is a broader measure of the cost of a mortgage because it includes the interest rate plus other costs such as broker fees discount points and some closing costs expressed as a percentage. Watch out for aprs on arms.

A lower apr does not necessarily mean it s better of the two loan offers. I ll explain why with a basic example. Unlike an interest rate however it includes other charges or fees such as mortgage insurance most closing costs discount points and loan origination fees. The apr on loan a is lower making it indeed the better mortgage deal.

An annual percentage rate apr is a broader measure of the cost of borrowing money than the interest rate. The 6 interest rate is then used to calculate a new. Apr stands for annual percentage rate your apr includes your interest rate plus additional fees and expenses associated with taking out your loan. When shopping for a mortgage look at not only the interest rate and apr but also the other costs of the loan that aren t included in apr.

Like an interest rate the apr is expressed as a percentage. Let s look at an example of interest rates and apr. As noted the mortgage apr is basically the true cost of the loan or at least a bit more accurate than a simple interest rate. 4 50 4 838 apr mortgage rate y.

In order to determine your mortgage loan s apr these fees are added to the original loan amount to create a new loan amount of 205 000. For example you shouldn t compare the apr of a 30 year fixed rate mortgage to that of 5 1 arm. Apr is a broader look at what you ll pay when you borrow money and you can consider it your effective rate of interest. The apr reflects the interest rate any points mortgage broker fees and other charges that you pay to get the loan.

A loan with mortgage insurance will have a higher apr than the same loan without mortgage insurance because the insurance is a cost that s included in apr.