There are a few costs associated with taking out a mortgage. They include the interest rate, points, fees and other charges.
The interest rate is the cost you will pay each year to borrow the money. It is a percentage rate and doesn’t reflect any other charges you may have to pay for the loan. Currently, interest rates are still at historic lows, which is great news for borrowers.
The Annual Percentage Rate (APR) is a broader measure of your costs for borrowing the money. The APR reflects the interest rate along with the points, mortgage banker fees and other charges you may pay to get the loan. For this reason your APR is usually higher than your interest rate.
“The main difference is that your mortgage rate calculates what your monthly payment will be, while the APR calculates the total cost of the loan,” said A. Wade Douroux, President and CEO of Resource Financial Services. “Both figures are important when you’re shopping for a loan, so it’s important to understand them both. That is why our experienced mortgage bankers are here to educate the homebuyer. Don’t hesitate to talk to your mortgage banker, who will take the time to explain all the costs associated with your loan.”
Some things to consider:
- If you are interested in getting the lowest monthly payment, you will be focused on the interest rate. If you are looking at the total cost of the loan, the APR will matter most to you when comparing costs.
- If you plan to stay in your home for 30 years, it makes sense to go with a loan that has the lowest APR, because you will end up paying the lowest possible amount for your home.
- APR spreads the fees over the course of the entire loan; its value is optimized if the borrower plans to stay in the home throughout the entire mortgage.
- If you’re not certain how long you will stay in the home, it makes sense to pay fewer fees upfront and get a higher rate and higher APR, so your total costs will be less the first few years.
- Different lenders will include different fees in their APR for various loan programs. Talk to your mortgage lender to make sure you know what is included in your APR and that it makes sense for you and the life of the loan.
Resource Financial Services exists to make people’s dreams of home ownership a reality. Our experienced mortgage specialists work hard to educate homebuyers about the wide variety of loan programs that can be tailored to meet their individual financial needs. Homebuyers can expect in-house decision making, upfront underwriting with same-day pre-approval, 5-Day Processing, and quicker closings.
Call toll-free at 877.797.4545 to speak with a mortgage banker or visit Resource Financial Services online at rfsmortgage.com to learn more.