What is the difference between interest rates and APR, and why are they important to your mortgage? Both of these numbers are important because they allow you as a consumer to compare loans, as well as determine how affordable the loan itself is. Understanding interest rates and APR will help you become a pro mortgage shopper!
Here’s some quick facts about each you need to know:
When you receive different Loan Estimates and compare them its important to pay attention to these two factors. Interest rates are a significant part of the estimate, because the interest reflects a large part of your monthly payment. With a lower rate, you’ll pay less interest over the life of the loan. Your monthly payment is based on the interest rate and principal balance, not the APR.
Knowing the difference between interest rates and APR, but also how they work together to mold your mortgage as a whole is critical to becoming an informed consumer. It’s also smart to compare APRs because interest isn’t the only cost that comes along with your loan. Some of the costs included in the APR will be things like points, broker fees, origination fees, etc.
Take a look at our checklist to see the basic documents you’ll need to apply.