Understanding the difference between annual percentage rate, or APR, and interest rate could save you thousands of dollars on your mortgage. But if you’re like most homebuyers, you probably don’t know that the interest rate and the APR measure 2 important, but different, costs associated with your home loan.
“I regularly work with clients who don’t understand the APR,” says Todd Huettner of Huettner Capital in Denver. “If they don’t have questions about the APR or the Truth in Lending disclosure, where the APR is calculated, I know they simply didn’t read it.”
Interest rate and APR
The interest rate is the cost of borrowing the principal loan amount. It can be variable or fixed, but it’s always expressed as a percentage.
The APR is a broader measure of the cost of your mortgage because it reflects the interest rate, as well as other costs such as broker fees, discount points and some closing costs. The APR is also expressed as a percentage.
Why have both?
“The main difference is that the interest rate calculates what your actual monthly payment will be,” says Sean O. McGeehan, a mortgage sales manager in Chicago. “The APR calculates the total cost of the loan. A consumer can use one or both to make apples-to-apples comparisons when shopping for loans.”
For example, a loan with a 4% rate will have a lower monthly payment than a loan with a 6% rate, assuming both are fixed for the same term. Likewise, the total cost of a loan with a 4% APR will be less than one with a 6% APR.
Where it gets tricky
Separately, the interest rate and the APR have their limits. But together, borrowers should be able to use both figures to determine their monthly payments, as well as their total costs. The trick, says McGeehan, is to understand the interplay between the 2 figures.
“If a consumer is only focused on getting the lowest monthly payment, they should focus on the interest rate,” says McGeehan. “But if the consumer is focused on the total cost of the loan, then they can use the APR as a tool to compare the total cost of 2 loans.”
Source: Michael Estrin – Bankrate.com
63 comments
Title
[…]always a huge fan of linking to bloggers that I adore but really don’t get a lot of link really like from[…]
Title
[…]Wonderful story, reckoned we could combine a number of unrelated data, nevertheless genuinely worth taking a search, whoa did one master about Mid East has got additional problerms too […]
Title
[…]although internet websites we backlink to below are considerably not associated to ours, we really feel they’re truly really worth a go via, so possess a look[…]
Title
[…]Here are a number of the websites we advocate for our visitors[…]
Title
[…]usually posts some pretty exciting stuff like this. If you are new to this site[…]
Title
[…]very few internet websites that take place to become comprehensive beneath, from our point of view are undoubtedly very well worth checking out[…]
Title
[…]always a large fan of linking to bloggers that I love but do not get quite a bit of link enjoy from[…]
Title
[…]Wonderful story, reckoned we could combine a couple of unrelated information, nonetheless actually really worth taking a appear, whoa did one particular understand about Mid East has got extra problerms also […]
Title
[…]Here are several of the websites we advise for our visitors[…]
Title
[…]here are some hyperlinks to internet sites that we link to simply because we assume they may be worth visiting[…]
Title
[…]Here are a few of the websites we recommend for our visitors[…]
Title
[…]just beneath, are various totally not connected web pages to ours, nonetheless, they’re surely really worth going over[…]
Title
[…]although internet websites we backlink to below are considerably not connected to ours, we really feel they’re in fact worth a go via, so possess a look[…]
Title
[…]Sites of interest we have a link to[…]
Title
[…]just beneath, are many absolutely not related web sites to ours, nonetheless, they’re surely really worth going over[…]
Title
[…]very few internet sites that come about to become detailed below, from our point of view are undoubtedly very well worth checking out[…]
Title
[…]below you’ll discover the link to some sites that we believe you must visit[…]
Title
[…]always a major fan of linking to bloggers that I really like but do not get quite a bit of link love from[…]
Title
[…]always a huge fan of linking to bloggers that I like but do not get lots of link adore from[…]
Title
[…]just beneath, are numerous absolutely not related websites to ours, nonetheless, they may be surely worth going over[…]
Title
[…]very couple of sites that happen to be detailed below, from our point of view are undoubtedly nicely worth checking out[…]
Title
[…]usually posts some very fascinating stuff like this. If you are new to this site[…]
Title
[…]very handful of internet sites that transpire to be in depth beneath, from our point of view are undoubtedly nicely really worth checking out[…]
Title
[…]please check out the web-sites we adhere to, including this a single, as it represents our picks in the web[…]
Title
[…]below you’ll come across the link to some web-sites that we feel you need to visit[…]
Title
[…]Here is a superb Blog You may Uncover Interesting that we Encourage You[…]
Title
[…]just beneath, are various entirely not connected sites to ours, having said that, they are certainly worth going over[…]
Title
[…]here are some links to web-sites that we link to simply because we consider they may be really worth visiting[…]
Title
[…]please go to the sites we comply with, such as this one, as it represents our picks through the web[…]
Title
[…]below you’ll come across the link to some internet sites that we believe you need to visit[…]
Title
[…]we prefer to honor a lot of other online web pages around the web, even though they aren’t linked to us, by linking to them. Beneath are some webpages worth checking out[…]
Title
[…]usually posts some really fascinating stuff like this. If you’re new to this site[…]
Title
[…]here are some links to web pages that we link to because we think they may be really worth visiting[…]
Title
[…]The data mentioned in the post are a few of the top accessible […]
Title
[…]please visit the web sites we follow, such as this one particular, because it represents our picks in the web[…]
Title
[…]the time to study or take a look at the content material or websites we have linked to below the[…]
Title
[…]although web-sites we backlink to below are considerably not related to ours, we really feel they may be really worth a go by means of, so possess a look[…]
Title
[…]we came across a cool site that you just could enjoy. Take a appear in the event you want[…]
Title
[…]we came across a cool web page which you might love. Take a look in the event you want[…]
Title
[…]we came across a cool web-site that you might get pleasure from. Take a appear for those who want[…]
Title
[…]The information and facts mentioned within the article are some of the top obtainable […]
Title
[…]Every after inside a although we opt for blogs that we read. Listed below would be the most up-to-date sites that we choose […]
Title
[…]we prefer to honor quite a few other net web sites on the net, even when they aren’t linked to us, by linking to them. Underneath are some webpages worth checking out[…]
Title
[…]below you will come across the link to some sites that we assume you need to visit[…]
Title
[…]the time to study or go to the content or web pages we have linked to below the[…]
Title
[…]very handful of internet websites that come about to become comprehensive below, from our point of view are undoubtedly properly really worth checking out[…]
Title
[…]very couple of web-sites that happen to become in depth beneath, from our point of view are undoubtedly effectively worth checking out[…]
Title
[…]Here is a good Weblog You may Obtain Fascinating that we Encourage You[…]
Title
[…]that would be the finish of this report. Right here you’ll discover some web sites that we assume you’ll value, just click the links over[…]
Title
[…]we came across a cool website that you might take pleasure in. Take a look in case you want[…]
Title
[…]please visit the web-sites we comply with, including this one, as it represents our picks from the web[…]
Title
[…]always a major fan of linking to bloggers that I love but do not get lots of link like from[…]
Title
[…]we like to honor quite a few other internet websites on the internet, even when they aren’t linked to us, by linking to them. Under are some webpages worth checking out[…]
Title
[…]just beneath, are quite a few absolutely not related sites to ours, nevertheless, they’re certainly worth going over[…]
Title
[…]Sites of interest we’ve a link to[…]
Title
[…]we came across a cool internet site which you may appreciate. Take a search when you want[…]
Title
[…]we like to honor many other net websites around the internet, even if they aren’t linked to us, by linking to them. Beneath are some webpages worth checking out[…]
Title
[…]The info talked about in the write-up are a few of the top out there […]
content
[…]This is very interesting[…]
Title
[…]we like to honor several other web internet sites on the internet, even if they aren’t linked to us, by linking to them. Below are some webpages worth checking out[…]
Title
[…]below you’ll uncover the link to some sites that we feel you must visit[…]
Title
[…]usually posts some very fascinating stuff like this. If you’re new to this site[…]
Title
[…]one of our guests just lately encouraged the following website[…]