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Mortgage Guide

How to get a home loan

Interest Rate vs. APR: What is the difference?


When choosing a mortgage, the combination of dizzying terms and numbers can throw off anyone looking for a new home. Two of the most important terms to watch out for, however, are the mortgage interest rate and the annual percentage rate (APR). Though both may sound similar, knowing what they cover and the differences between the two will help you make better decisions when deciding on which mortgage bests fits your situation.

Mortgage Interest Rate

Always expressed as a percentage, the mortgage interest rate represents the cost of the loan that you have to pay yearly to borrow money from a lender. Whether in a fixed (where the interest rate stays the same throughout) or adjustable form (where the interest rate changes based on factors set by the loan), these rates do not reflect any additional costs that are charged by the loan.

Annual Percentage Rate

Covering a much larger scope, the APR of a mortgage not only includes the interest rate but all the other costs that you have to pay to get the loan. These include broker fees, loan origination fees, and closing costs, just to name a few.

This can help you, the consumer, get a clearer understanding of just how much the loan you’re considering is going to cost and help you weigh the pros and cons of various interest rates and closing fees.

Mortgage Interest Rate

Annual Percentage Rate

Percentage of the loan that you have to pay yearly

mortgage interest rate

broker fees

loan origination fees

closing costs

other costs

Considering APR

Interest rates are pretty self-explanatory. If you have two loans that cost the same with different rates, you would most likely go for the one with a lower interest (considering it has a fixed cost, of course). But what about APR?

APR is best taken into account if you plan to finish the whole loan term. Borrowers tend to overlook the fact that it takes into account all closing costs, making it seem that some loans are better than others when in reality you would be spending more if you decide to move or refinance.

By planning out just how long you will need the mortgage and taking into account the different interest rates and costs that are included in the APR, you can get yourself one step closer to owning that house you always wanted.

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