When searching for mortgages, you may are presented with information on interest rate and APR. These are usually mistaken as being synonymous, but they are actually calculated differently. It is essential for home buyers to evaluate both. The following are details on Melrose MA home loan interest rate vs. APR.
How Interest Rates Differ from APR
Interest rates determine monthly mortgage payments for the duration of a mortgage. This is usually the figure advertised by mortgage companies. It does not include the initial cost of a loan. Fees can vary between programs and mortgage companies. For example, there may be pre-paid interest for one program but not another. Other fees that may be included are origination and services fees, just to name a couple. The APR reflects the interest rate plus specific closing costs, so it balances out the figures.
How APR Can Be Used
When comparing different financing alternatives from the same or different lenders, the APR is an amount that may be used. You may be reviewing a lower interest rate with greater fees and a higher rate with low closing costs. The actual expense includes both the up-front fees and what you pay over time. The APR may therefore assist with the analysis.
| 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 Figures Are Compiled
There are a couple of facts that home buyers should know when it comes to APR figures. APR is calculated based on the term of a mortgage. If you were to pay off your mortgage sooner, the realized APR will be more. Additionally, one loan that appears to offer a lower APR than another could end up looking less desirable if the number of years were adjusted. The lowest APR is not necessarily the better option. Since most home owners do not keep their mortgage for its entire length, this is an important thing to mention.
| 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 calculations are not exact. For instance, the rate on an adjustable rate loan is likely to fluctuate but the amount is not predictable. Therefore, they are calculated using the assumption that the amount will remain unchanged,..when in fact, they are likely to.
Help With Melrose MA Home Loan Interest Rate Vs. APR
To make an accurate comparison of your alternatives, it is essential to obtain quotes close together in time (on same day if feasible) as interest rates are constantly fluctuating. Also remember that rates are subject to change unless you lock in. Always review the interest rate and APR jointly to better understand the loan and associated costs. An experienced loan officer can provide additional advice on Melrose MA home loan interest rate vs. APR.