What is the difference between the interest rate and the A.P.R.?
You'll see an interest rate and an Annual Percentage Rate (A.P.R.) for each mortgage loan you see advertised. The easy answer to "why" is that federal law requires the lender to tell you both.
The A.P.R. is a tool for comparing different loans, which will include different interest rates but also different points and other terms. The A.P.R. is designed to represent the "true cost of a loan" to the borrower, expressed in the form of a yearly rate. This way, lenders can't "hide" fees and upfront costs behind low advertised rates.
While it's designed to make it easier to compare loans, it's sometimes confusing because the A.P.R. includes some, but not all, of the various fees and insurance premiums that accompany a mortgage. And since the federal law that requires lenders to disclose the A.P.R. does not clearly define what goes into the calculation, A.P.R.s can vary from lender to lender and loan to loan.
The A.P.R. on a loan tied to a market index, like a 5/1 ARM, assumes the market index 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, A.P.R.s are at best inexact. The lesson is that A.P.R. can be a guide, but you need a mortgage professional to help you find the truly best loan for you.
Note when you're browsing for loan terms that the A.P.R. will not tell you about balloon payments or prepayment penalties, or how long your rate is locked. Also, you'll see that A.P.R.s on 15-year loans will carry a higher relative rate due to the fact that points are amortized over a shorter period of time.
Leo Namiot
Benchmark Mortgage - Connecticut http://www.leolends.com/
Thomaston CT, Torrington CT, Danbury CT, Brookfield CT, Avon CT, Litchfield CT, West Hartford CT, Watertown CT, Oxford CT, Middlebury CT, Morris CT, Waterbury CT, New Haven CT, Milford CT, Norwalk CT, Fairfield CT, Stamford CT, Stratford CT, Newtown CT, Southbury CT, Hartford CT, Burlin CT, Winsted CT, New Hartford CT, Prospect CT, Southport CT, Westport CT,CT Mortgages, Woodbury CT, Naugatuck CT, Shelton CT,Bridgeport CT, Old Lyme CT,East Lyme CT, Middletown CT, Cromwell CT, Bristol CT, Benchmark Mortgage CT,Southington CT, Plainville CT, New Britain CT, Wolcott CT, Terryville CT,Newington CT,Meriden CT,Kent CT, Bantam CT, Northfield CT,Oakville CT,CT First Time Home Buyers,Derby CT, Orange CT,Branford CT, New Milford CT,Easton CT, Darien CT, Washington Depot CT,Beacon Falls CT,East Hartford CT,Waterford CT,Brooklyn CT,Dayville CT,Wallingford CT,Cheshire CT, Ansonia CT, Stratford CT,Monroe CT,West Palm Beach Florida,Key West Fl,Jacksonville FL,Miami Fl,Daytona Beach FL,Tampa Fl,Ft Lauderdale Fl,Orlando Fl,Waterbury CT,Bridgeport CT,Bantam CT,Waterforf,Newingtoc CT,Burlington CT,East Haven CT,Stamford CT,Stratford CT,Guilford CT,Essex CT
;)
;)
