APR: The Annual Percentage Rate & Your Mortgage
Annual Percentage Rate, more commonly referred to as APR, is a term any homeowner or buyer is familiar with. You know, it’s that percentage always mentioned after the mortgage interest rate. But what exactly is APR, and what does it have to do with your home loan?
The first thing to address is how APR is different than your interest rate – although it does involve it.
To put it simply, APR is a broader measure of the total cost on your home. In addition to the interest rate, APR takes into account other costs you pay up-front to get your loan. It then takes those costs and spreads it all out over the entire term of your loan.
Examples of these these other costs include:
- Closing Fees (Accunet vs Quicken Loans)
- Discount Points
- Origination Points
- Underwriting Fees
- Processing Fees
- and more…
Try to think of it this way; 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.
Once our clients have a better understanding of what the APR really is, they often ask if they should be looking for the lowest interest rate or the lowest APR. Unfortunately, there’s no 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.
At Accunet Mortgage, we take great pride in helping to put people into a new house. That said, while the closing table is the final destination, an invaluable component of the home buying journey is sharing our expert knowledge with our clients, because an informed buyer is a happier and more confident buyer.
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