When it comes to getting a home loan, it’s important to understand what your APR or annual percentage rate is and how it can affect your mortgage. This will impact the type of loan you choose and how much you’re going to spend throughout the life of the loan. That is why the cost of the house would depend upon it.
What Exactly is APR?
APR or the annual percentage rate is the number that determines the true cost of your mortgage. It includes the interest, origination fees, points, and other related costs of your mortgage. Furthermore, it is almost always higher than the actual interest rate. However, these fees are not always included in the annual percentage rate. In addition to this, appraisal, credit reporting, and home inspection fees aren’t always included either. Thus, it’s important to ask the lender who’s handling your mortgage loan what is and isn’t included in the APR so you can compare it with other loans.
How Does Interest Rate Differ From APR?
The interest rate is the rate that accumulates on what you’ve borrowed. For example, if you’re borrowing $200,000 at 5%, this means that you’ll be paying $10,000 in interest every year. Additionally, a portion of it will be included in your monthly payment. The APR is what you’ll be paying including interest and all of the other associated costs of your mortgage. Basically, it’s an accurate reflection of the true cost of your loan.
Your interest rate is determined by your credit score and the current rate. Therefore, your monthly mortgage payment will be based on your interest rate and your loan balance. However, your monthly payment isn’t based on the annual percentage rate. Don Burns of H.O.M.E Lending quoted “It’s actually determined by the lender and includes all of the lender’s fees. The bottom line is that you need both numbers because they provide different information about your home loan.”
Using Both To Compare Loans
The general rule of thumb is the higher your APR, the more your monthly mortgage payment will be. Comparing the annual percentage rate will come in handy when you are comparison shopping for a loan. If you’re planning on staying in your home for a long time, choose a loan that has the lowest annual percentage rate. On the other hand, if you won’t be in your home for the full term of the loan, choose a loan with the higher APR but lower upfront fees.
For more information about how the annual percentage rate affects your mortgage loan, contact H.O.M.E. Lending today at (209) 477-0262. Their business representatives are available to assist you with your mortgage needs. Call them today!