How many times has a buyer said at closing “Wait a minute, something is wrong here. I thought my interest rate was going to be 5% why does this say 5.6%. If the mortgage broker is not attending closing or the title closer does not have the answer it may be left up to you as their Realtor to explain this age old question and sometimes complicated explanation of APR vs. Interest Rate.
The first point to get across to your buyer is that the APR is NOT their interest or note rate and it does NOT determine their monthly mortgage payment. The second point is the APR is ALWAYS higher than the interest rate. The sole purpose of the APR is to help a borrower shop for the most cost effective mortgage by comparing rates and costs. The interest rate determines the monthly mortgage payment for a borrower along with the loan term and loan amount.The interest rate also called the note rate on a mortgage is the yearly rate (or %) charged on the amount of money being borrowed.
The Annual Percentage Rate (APR) is a calculation of the yearly interest being charged on the money being borrowed PLUS certain fees charged by the financial institution associated with borrowing money. (i.e. loan origination fees,, tax service fees, processing fees, underwriting fees, any discount points, mortgage insurance, etc.) The fees that are calculated into the APR and are shown on the Good Faith Estimate given to the borrower within the first 3 days of the loan application process.
The closer the interest rate and APR are in number the less costs were added to the loan.
Pamela Starusta, Broker/Owner Waypoint Realty Group,Inc West Palm Beach, FL 561-459-0040
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