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In finance and lending, the term APR stands for annual percentage rate. This figure represents the sum of the periodic interest rates on your mortgage or other credit accounts.
Function
The APR is divided by 12 to calculate the monthly interest rate on your mortgage. The monthly rate determines how much interest accrues on your mortgage each month.
Types
A mortgage can have either a fixed rate for the life of the loan, or an adjustable rate that will fluctuate with market conditions.
Considerations
Lenders will take into consideration your credit score, employment history and debt-to-income ratios when determining the interest rate to offer on your mortgage.
Effects
Having a higher interest rate on your mortgage may limit the amount that you can borrow, because a higher interest rate will result in a higher monthly payment.
Misconceptions
The APR is different from the APY, which stands for annual percentage yield. The APY takes into consideration the effects of interest compounding, which means the APY will be higher than the APR.
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