 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.
F.A.Q
We offer a wide range of services including real estate sales,
financing, and property management. Call us today for a free
consultation @ 916-482-6899 or email us at fay@amerpropmgmt.com.
|
