Mortgage Myth: “Interest rate and APR are the same thing.”
Truth: Words like ‘escrow’, ‘amortization’, and ‘APR’ can sound like jargon gibberish to the untrained ear. However, taking the time to understand the difference between APR and an interest rate can save you thousands of dollars.
What is interest?
Expressed as a percentage, an interest rate represents the cost of borrowing a principal loan amount from a lender. Every month, homeowners pay back a portion of their loan sum plus interest accrued. The higher the rate, the larger the monthly payment.
How is your interest rate determined? Your credit score, where your home is located, the size of your down payment, as well as the length of your loan can influence your rate.
Tip: Make larger monthly installments than required to potentially pay less in interest over time.
What is APR?
Short for annual percentage rate, APR speaks to the overall cost of a home, rather than just monthly payments. The interest rate, homeowner’s insurance, and a number of fees associated with the processing of a loan are included, giving borrowers a better idea as to what they are actually paying.
What is a good rate?
APR and interest rates vary depending on multiple factors, such as your creditworthiness. To save money where you can, compare mortgages by examining both the interest rate and APR of a loan closely. Build a spreadsheet to ensure you have an accurate look at closing fees, as well as which costs are included in the calculated APR.
Additionally, consider how much money will be required upfront to obtain each loan.
At Summit Mortgage Corporataion, our senior mortgage bankers are happy to walk you through every step in the loan process. We want to make your journey to homeownership as easy and clear as possible. Give Us a Call today to get started!