What is The APR and How Is It Different From The Interest Rate Of My Loan?

Any time you see mortgage rates advertised you will always see the A.P.R (annual percentage rate) for the loan advertised as well. Federal law requires that the lender show you both the interest rate and the APR of the loan.

What Is The A.P.R

The A.P.R Is a way of comparing different loans which include the interest rate as well as points and other fees. The A.P.R is a way of showing the true cost of borrowing the is expressed in a yearly rate. It also makes it impossible for lenders to hide fees and other costs in the low mortgage rates they advertise.

While the purpose if the annual percentage rate is to make loan comparison easier it will sometimes confuse borrowers because it takes into account only some not all of the fees that are associated with a mortgage. In addition the Federal law that requires the disclosure of A.P.R does not actually state what goes into the calculation so the A.P.R can vary at different banks and lenders.

The annual percentage rate on a home mortgage that is tied to a market index like a 3/1 ARM makes the assumption that the market will never change. But ARMS were invented because the market index changes and makes fixed rate loans cheaper or more expensive to make -- that's why they're variable rate in the first placed. So the annual percentage rate is at best just a rough guide. The overall lesson to be learned is that the A.P.R is only a rough guide and you truly need a mortgage professional to help you find the best loan and best deal for you.

Also keep in mind that when looking at annual percentage rates you will not be told about any balloon payments or prepayment penalties on the loan or how long the rated is fixed on an ARM loan. Another thing to keep in mind is that a shorter term mortgage like a 15 year fixed rate loan will have a higher APR because everything is amortized over a less time as opposed to a 30 or 40 year fixed.

If you have any questions about you mortgage APR feel free to contact one of friendly and experienced mortgage professionals at (414)-771-1200