When reviewing options for loans, you may are presented with the terms interest rate and APR. These are usually misinterpreted as being the same, but they in fact have different calculations. It is important for borrowers to compare both. Below is an overview of the difference between interest rate and APR for Singer Island mortgages.
Interest Rate and APR
Interest rates apply to monthly mortgage payments for the term of a mortgage. This is almost always the figure promoted by lenders. It does not include the initial cost of a loan. Fees will vary between mortgage programs and lenders. For example, there may be pre-paid interest for one mortgage but not another. Other charges that may be included are mortgage origination and services fees.. The APR reflects the interest rate and certain closing costs, so it is a better indication of overall expense.
How APR Can Be Used
When weighing different mortgage programs from one or multiple lenders, the APR facilitates an easy comparison. You can be reviewing one option with high fees and another with low fees and a separate rate for each. The final expense includes both what you pay up-front and what you pay in interest over time. The APR can 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 |
How APR Is Calculated
There are a couple of facts that borrowers should understand when it comes to how APR is determined. It is compiled based on the term of a loan. If you were to pay off your loan sooner than that length, the actual APR can be higher. Furthermore, one program that appears to have a better APR than another might end up looking less desirable if the number of years is adjusted. The lowest APR is not automatically the better option. Because most borrowers do not keep their mortgage for its entire 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 |
Additionally, some APR estimates are not definite. For instance, the rate on an adjustable rate loan will alter but the amount cannot be forecasted. The APR on these mortgages are based on the initial rate.
More On The Difference Between Interest Rate And APR For Singer Island Mortgages
To complete an accurate comparison of loan alternatives, it is essential to request quotes within a similar time frame (on same day if feasible) as interest rates are continually changing. Also remember that your actual rate is not set unless you lock in. Always review the interest rate and APR together to better understand the mortgage and associated costs. An experienced mortgage professional can furnish further advice on the difference between interest rate and APR for Singer Island mortgages.
