When looking for loans, you may hear the terms interest rate and APR. These are often misinterpreted as being synonymous, but they are actually calculated differently. It is important for borrowers to compare both. Below is an overview of MA mortgage interest rate vs. APR.
Defining Interest Rate and APR
Interest rates are used to calculate monthly loan payments for the term of a loan. This is typically the rate given by mortgage companies. It does not reflect the up-front cost of financing. Fees will differ among mortgage programs and mortgage companies. For example, there may be points for one program but not another. Other charges that may be included are loan origination and services charges.. The APR accounts for the interest rate and particular fees, so it balances out the expenses.
How APR Can Be Used
When weighing different mortgage programs from one or multiple companies, the APR is a figure that may be used. You might be looking at a lower interest rate with greater closing costs and a higher interest rate with less closing costs. The actual expense includes both what you pay up-front and what you pay over time. The APR may thus aid with the evaluation.
| Loan Amount | Term | Interest Rate | Up-front Cost | APR |
|---|---|---|---|---|
| 100,000 | 30 years | 5 percent | 1,000 | 5.09 percent |
| 100,000 | 30 years | 4.5 percent | 4,000 | 4.85 percent |
A Few Things To Keep In Mind
There are a few things that home buyers should keep in mind about APR figures. It is compiled using the life of a mortgage. If you pay off your mortgage sooner than that length, the realized APR may be much different. Also, one program that seems to have a better APR than another may end up being higher using a fewer number of years. The best APR is not always the best option. Because most home buyers do not retain the same loan for its full term, this can be important.
| Loan Amount | Term | Interest Rate | Up-front Cost | APR |
|---|---|---|---|---|
| 100,000 | 5 years | 5 percent | 1,000 | 5.41 percent |
| 100,000 | 5 years | 4.5 percent | 4,000 | 6.12 percent |
Secondly, some APR calculations are not definite. For instance, the rate on a variable rate mortgage will change but the amount is not predictable. Thus, they are calculated using the assumption that the amount will remain unchanged,..when in actuality, they will.
Assistance With MA Mortgage Interest Rate Vs. APR
To perform an accurate comparison of your options, it is important to obtain and compare quotes. Also, know that your final rate is not set until you lock in. Always review the interest rate and APR jointly to better understand the loan and related costs. A knowledgeable loan officer can furnish further advice on MA mortgage interest rate vs. APR. For hard money lending information, contact Atlas Companies, LLC.
