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Mortgage Rates vs. APR: What’s the Difference?

Posted on 2023-04-13 17:06:11 by iNF
Real Estate Mortgage rates annual percentage rate home financing interest rates home buying
Mortgage Rates vs. APR: What’s the Difference?

When buying a home, mortgage rates and annual percentage rate (APR) are two terms you'll often hear. But what do they mean and how do they differ? In this article, we'll break down the differences between these two terms so you can make more informed decisions when financing your home purchase.

What Are Mortgage Rates?

Mortgage rates are a straightforward concept. They represent the interest rate that you'll pay on your home loan. Typically, a lower mortgage rate means your loan will cost less over time. The rate is expressed as a percentage and can vary based on factors such as your credit score, the amount of your down payment, and the length of your loan term.

What is Annual Percentage Rate (APR)?

Annual percentage rate (APR) is a more comprehensive measure of your home loan costs. It takes into account not only your mortgage interest rate, but also any additional fees and charges associated with your loan, such as origination fees, closing costs, and private mortgage insurance (PMI).

How Are Mortgage Rates and APR Different?

The fundamental difference between mortgage rates and APR is what each represents. Mortgage rates only include the cost of borrowing money, while APR includes the interest rate plus any additional fees. When comparing loans, APR gives you a more complete picture of the total cost of the loan over time.

Why Understanding Both Is Important

Understanding both mortgage rates and APR is crucial when making informed decisions about home financing. By knowing the cost of borrowing money and the total cost of the loan, you can select the loan that is right for you and your budget. It's important to ask your lender for both the mortgage rate and the APR, so you can see how the additional fees will impact your total loan cost.

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