If you’ve ever applied for a mortgage loan, you’ve probably seen the term annual percentage rate (APR). The APR represents the total cost of financing your home, expressed as a percentage with the closing costs factored into the rate over a specific amount of time.
The APR is typically higher than the actual mortgage rate that a borrower will pay; it’s your base mortgage interest rate plus any finance charges that will be paid along with your loan. It’s higher than the mortgage interest rate because it includes closing costs like loan origination fees, broker fees, discount points, prepaid interest and some escrow/title fees.
The APR for the same loan can vary dramatically from lender to lender as each institution may have a slightly different methodology they use in their calculations.
Advertised APR’s are presented to look exceptionally attractive in an effort to compel a borrower to take action. However, advertised APR’s are often misleading, because they can come with a lot of caveats. The APR is a great metric to compare loan options but it can take some digging to ensure you are understanding it properly. Ask your Loan Officer what fees are included in the APR to properly compare your loan options and determine which option is best for you.
If you have any questions about interest rates in accordance with mortgage loans, and how you can get the best possible rate, please call us at (760) 930-0569 to discuss further.