First, let’s start with APR, which is the interest you will pay on your loan. This is going to be paid annually and it’s going to average out based on the full length of time that you have your loan.
If you have a lower APR you’re going to pay less overall whereas a higher APR means you pay more overall.
You want to look at the different options when it comes to taking out a loan. A low APR is great but you may have to pay additional fees in order to get that lower rate.
If you didn’t have to pay that money upfront you may be able to do a little better paying it for things that you want. You could use the money for furniture, appliances and more. And you may be willing to go with a higher interest rate for that.
Now, keep in mind that you’re going to have financing charges, fees and charges in order to get the loan at all and when it comes to the APR you’re going to pay a bit more. Just remember that this doesn’t go into choosing your monthly payment but it does affect other aspects.
When you’re looking at this you can compare different mortgage offers that are available and then you can make a good choice. You want to look at other aspects of the mortgage loan like the down payment and the closing that you’ll have to pay for. Using a good calculator will help you with that.
What Is The Difference Between APR And Interest Rates?
Now, when we start talking about interest rates we’re talking about essentially how much you have to pay for the privilege of borrowing the money.
When it comes to APR you’re going to be accounting for not just the interest rate but also other fees associated with the loan.
You want to look at the interest rate as a part that will be put into your monthly payment.
It doesn’t include everything that the APR does, like application fees, closing costs, attorney fees, points and more. This is the amount that it’s actually going to cost for the full loan.
Now, if you’re getting a mortgage of $10,000 and you have a 10% interest rate for 30 years you have to look at the different fees.
Let’s say the first company you reach out to says they’re going to charge you $100 in origination fees. Your APR with the fees is about 10.12%. The second company is going to charge you $400 in fees so your rate is 10.47%.
You’re getting the same monthly payments and the same interest rate, but you’re not going to be paying as much with the second option as the first.
You want to look at getting the best match between APR and interest rate. You’ll always have a higher rate for APR than interest, but you want them to be similar. This is going to give you a little less overall cost.
You also want to look at how long you’re going to stay in the property. If you’re staying for the full length of the loan you’ll want to pay attention to APR. If not then you’re going to want to look at other factors.