When evaluating financing, you may come across the terms APR and interest rate. These are usually mistaken as being the same, but they represent different things. It is essential for borrowers to understand both. Below is information on MA home loan interest rate versus APR.
APR and Interest Rates – The Difference
Interest rates apply to monthly mortgage payments for the duration of a loan. This is almost always the figure given by mortgage companies. It does not reflect the initial cost of a loan. Fees can vary between loan programs and lenders. For example, there can be pre-paid interest for one loan but not another. Other fees that may be included are mortgage origination and services charges, just to mention a couple. The APR combines the interest rate plus specific closing costs, so it is a better indication of overall expense.
How to Use APR Information
When evaluating a range of financing options from one or multiple lenders, the APR offers a standard comparison. You might be presented with a low interest rate with high fees and a higher rate with low fees. The final expense includes both what you pay up-front and what you are responsible for over time. The APR can thus assist with the evaluation.
| Loan Amount | Term | Interest Rate | Up-front Cost | APR |
|---|---|---|---|---|
| 100,000 | 30 years | 5 percent | 1,000 | 5.09 percent |
| 100,000 | 30 years | 4.5 percent | 4,000 | 4.85 percent |
APR Disclaimer
There are a couple of facts that home buyers must know about APR figures. It is compiled over the term of a mortgage. If you were to pay off your mortgage sooner than that length, the final APR may be higher. Furthermore, one program that seems to have a better APR than another could end up having a higher APR after applying a fewer number of years. The best APR is not always the best option. Because most home owners do not retain their loan for its entire term, this can be important.
| Loan Amount | Term | Interest Rate | Up-front Cost | APR |
|---|---|---|---|---|
| 100,000 | 5 years | 5 percent | 1,000 | 5.41 percent |
| 100,000 | 5 years | 4.5 percent | 4,000 | 6.12 percent |
Additionally, certain APR estimates are not exact. For example, the interest rate on a variable rate mortgage is likely to fluctuate but the amount cannot be predicted. The APR on these mortgages are based on the starting rate.
Assistance With MA Home Loan Interest Rate Versus APR
To make an accurate comparison of your alternatives, it is important to request quotes within a similar time frame (on same day if feasible) as rates constantly change. Also keep in mind that they are subject to change until you lock in. Always look at the interest rate and APR together to better assess cost. An experienced mortgage professional can furnish other advice on MA home loan interest rate versus APR.
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