Whether you’re shopping around for the best mortgage terms or just trying to see what rates look like, one particular aspect might be a little confusing. There are two different percentages to look at. What’s the deal with that?
Quicken Loans Home Loan Expert Kevin Ruzylo dropped in to explain the difference between a mortgage interest rate and annual percentage rate (APR) in the video above.
Breaking It Down
In order to simplify this, let’s take a look at what a rate might look like when you’re shopping around.
The interest rate (the lower of the two) is the amount of interest a lender or bank will charge you in order to get a mortgage. This is more than likely the rate people are referencing when they say things like, “Rates dropped below 4% this week.”
The higher rate that’s listed is the APR. You can think of the APR as the “all in” rate. It encompasses not only your interest rate, but also other costs associated with getting your loan (e.g. closing costs). This annual rate is determined by looking at the total cost over the life of the loan.
A greater difference between the interest rate and the APR indicates a lender with higher costs, whereas a lower difference means fewer costs built into the rate.
One important point is to make sure that you’re comparing apples to apples. APR rate comparisons between 30-year-fixed mortgages and 5-year adjustable rates won’t necessarily be valid.
I’ll let Kevin fill in the gaps. If you still have questions after watching the video, go ahead and ask them in the comments.
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