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Tuesday, April 29, 2014

What's the difference between the Interest rate on my mortgage and the APR???

Here's a great article from my favorite lender team: The Perpich Group of Republic Mortgage in Folsom.  Erick and Lupe and the best lenders in the business and take great care of all my buyer clients.  Erick can be reached at 916-549-3577.

APR vs Interest Rate

Juggling Percentage Symbols
There are many terms, concepts and general language that might seem complex in the mortgage industry, but APR–or annual percentage rate–and interest rate seem to combine to create one of the the two most confounding terms in the industry.
On it’s own, interest rate seems nearly self-explanatory and the definition makes sense to most prospective homeowners. APR, however, often requires more explanation.
Interest Rate
Interest rate refers to the rate at which a borrower pays back interest on a loan that they take from a bank or other lender. Broken down, the interest rate is the percentage of the principal loan amount the borrower pays back during a certain period of time, and a year is the most common time frame to use as a metric. The lender predetermines the interest rate and the time frame for repayment of principal and interest.
Annual Percentage Rate (APR)
The most basic explanation of APR that it bundles all the fees associated with your loan together with your actual interest rate, and “annualizes” that into one all-inclusive rate. In other words, the APR is a finance charge formulated as an annual rate of interest on repayment of loan. As if things weren’t confusing enough between interest and APR, the APR also adds in the nominal APR, which is the simple interest rate over the course of a year while the effective APR includes any fees agreed upon plus the compound interest rate over a year.
Quite simply, the APR gives a more comprehensive perspective of what the loan costs the borrower over the life of the loan.

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clear skies,

Doug Reynolds




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