ANSWERS: 1
  • When you are looking to purchase a home, the lender will quote an annual percentage rate (APR). The APR represents your cost of borrowing funds. It is a net effective rate that allows you to compare mortgage loan offers.

    Expert Insight

    When a lender quotes you an APR, it must also quote the interest rate. The APR represents your cost of borrowing funds with certain expenses factored in. It gives the true cost of borrowing for a mortgage loan.

    Features

    A loan of $200,000 with an interest rate of 7 percent for 30 years can be compared to another loan of $200,000 and an interest rate of 6 percent. If the second loan has $7,000 in points and fees, the APR will be higher. The first loan will be the better deal even though the interest rate is higher.

    Prevention/Solution

    Decide which offer is best for you by taking a look at the APR. If you plan on staying in your home for a while, the lower APR may be the better deal. In the short run, a higher APR between two mortgage loans may be the better deal because of the discount points and loan origination fees.

    Benefits

    Use a mortgage APR calculator to calculate your interest rate, APR and monthly payment.

    Considerations

    According to bankrate.com, when a lender quotes an APR, the figure does not have to be exact. It can quote you an APR that has been rounded up or down to the nearest 1/8 of a percentage point.

    Source:

    Allbusiness.com: What Is the APR for Mortgages

    Bankrate.com: Understanding Mortgage APR

    realestateabc.com: APR for Mortgages

    More Information:

    Mortgageloan.com: mortgageAPR calculator

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