APR vs. Interest Rate: Navigating the Mortgage Landscape
Understand the complex mortgage landscape by learning the differences between APR and interest rates – this article will give you an explanation of the two.
APR vs. Interest Rate: Navigating the Mortgage Landscape
When researching a mortgage loan, it is important to understand the terms and conditions of the loan. Two of the most commonly used terms in a mortgage loan are APR (annual percentage rate) and interest rate. While these two items are related, they differ in the way they are calculated and the information they provide.
What is APR?
Annual Percentage Rate or APR is the annual cost of a loan including any additional fees, or points, associated with the loan. It is expressed as a percentage and is commonly used to compare loan offers from different lenders as it takes into account all of the costs associated with the loan. The APR is the true cost of borrowing money, as it includes any additional fees that are added to the loan.
What is Interest Rate?
The interest rate is the cost of borrowing money and is expressed as a percentage of the loan amount. Unlike APR, it does not include fees and does not reflect the total cost of the loan. The interest rate is often the first factor lenders consider when evaluating loan offers.
How Are They Different?
The main difference between APR and interest rate is that APR includes all of the costs associated with a loan, while interest rate does not. APR is typically higher than interest rate as it takes into account any additional fees that are included in the loan, such as points or closing costs.
It is important to understand the differences between APR and interest rate when considering a mortgage loan. While the interest rate is an important factor, it is only one element of the loan. APR provides a better understanding of the true cost of the loan and should be taken into account when comparing loan offers.