Understanding Interest Rates vs. APRs Points

Interest Rates vs. APRs Points

Understanding Interest Rates vs. APRs Points Understanding how mortgage interest rates and APRs, or annual percentage rates, work can help you choose the right loan. APR's include the mortgage interest rate as well as all fees and points that are ...

Understanding Interest Rates vs. APRs Points

Understanding how mortgage interest rates and APRs, or annual percentage rates, work can help you choose the right loan. APR’s include the mortgage interest rate as well as all fees and points that are paid over the life of the loan. It’s important to recognize that there are other fees that going into a mortgage loan which may make it more expensive than the interest rate would imply.

To understand 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 home buyers, you probably don’t know that the interest rate and the APR measure 2 important, but different, costs associated with your home loan.

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.

The main difference is that the interest rate calculates what your actual monthly payment will be; 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

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.

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