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The Difference Between a Mortgage Rate and APR

Posted on 2023-04-13 17:06:11 by iNF
Mortgages Mortgage rate APR home loans interest rates financing
The Difference Between a Mortgage Rate and APR

Buying a home is a significant financial decision that requires careful planning and consideration. One important factor to understand when shopping for a mortgage is the difference between a mortgage rate and an annual percentage rate (APR). This article will help explain the key differences and why they matter when selecting a lender.

What is a Mortgage Rate?

The mortgage rate is the interest rate you pay on the loan. It is the percentage of the principal amount that the lender charges you for the use of their money. The mortgage rate is usually lower than the APR, but it does not include any fees or charges associated with the loan.

What is APR?

The APR, on the other hand, includes the mortgage rate and any other fees or charges associated with the loan. This could include origination fees, discount points, and closing costs. The APR is usually higher than the mortgage rate because it takes into account these additional costs.

Why is APR Important?

Understanding the APR is important because it gives you a more accurate picture of the true cost of the loan. You may be drawn to a lower mortgage rate, but if the APR is significantly higher, it could mean that the loan is more expensive overall than a loan with a higher mortgage rate and lower APR.

How to Choose the Right Loan

When choosing the right loan, it's essential to compare both the mortgage rate and the APR. The loan with the lowest APR may not always be the best option as it could have higher fees or require you to pay points to get a lower rate. Be sure to read the fine print and understand all the costs associated with the loan before making a decision.

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