What Does APR Mean on a Mortgage?

We hear about them all the time, and most folks understand what an interest rates is. When we see the interest rates, however, there’s another number sitting right next to it called the APR. That’s great, but what is the APR, and what does it have to do with your loan?

APR is the annual percentage rate. It differs from the interest rate, because it’s a broader measure of your total cost. Along with the interest rate, APR takes into account other costs you pay up front to get your loan (ie: discount points, origination points, underwriting fees, processing and closing fees etc.), and it spreads those costs out over the entire term of your loan.

Simply put, your interest rate helps you calculate what your monthly/yearly payments will be, and the APR calculates the total cost of the loan over 30-years, 15-years etc. The greater the difference between the interest rate and the APR, the bigger the costs.

After learning what the APR really is, many of our clients ask us if they should be looking for the lowest interest rate or the lowest APR. Unfortunately, there’s not cookie-cutter answer to this, and it will all depend on each home-buyer. If you’re only looking for the lowest monthly rate, then it would make sense to concentrate on just the interest rate. If you’re looking for the total cost of the loan, then using the APR in conjunction with the interest rate is the route to go. That said, if you have an adjustable-rate loan, it gets a little trickier. That’s why we always recommend talking to your mortgage lender, like the experts right here at Accunet Mortgage.

Share on FacebookTweet about this on TwitterShare on LinkedInShare on Google+Share on RedditEmail this to someone