Southern CA Home Loan APR Versus Interest Rate

When looking at financing, you will see the words interest rate and APR. These are usually mistaken as being the same, but they are actually calculated differently. It is essential for borrowers to understand both. Below are details on Southern CA home loan APR versus interest rate.

Defining Interest Rate and APR

Interest rates affect monthly mortgage payments for the term of a mortgage. This is typically the figure advertised by companies. It does not include the up-front cost of a loan. Fees can differ among loan programs and financing companies. For example, there may be pre-paid interest for one loan but not another. Other costs that might be included are origination and services charges. The APR reflects the interest rate and certain fees, so it balances out the information.

Why APR Is Important

When weighing different mortgage programs from one or more lenders, the APR is a standard that may be used. You may be presented with a lower interest rate with greater fees and a higher rate with low fees. The final expense includes both the up-front fees and what you are responsible for over time. The APR can therefore help you better evaluate alternatives.

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 some things that borrowers must keep in mind when it comes to APR figures. It is formulated over the length of a mortgage. If you were to pay off your mortgage in a shorter time period, the actual APR may be a greater amount. Furthermore, one mortgage that seems to offer a better APR than another might end up looking less desirable if the number of years were adjusted. The lowest APR is not automatically the better option. Since most borrowers do not retain the same mortgage for its full term, this can be important.

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, certain APR calculations are not exact. For example, the rate on an adjustable rate mortgage will fluctuate but that change cannot be forecasted. Therefore, they are calculated based on the assumption that the amount will remain the same,..when in fact, they are likely to.

More On Southern CA Home Loan APR Versus Interest Rate

To complete a valid comparison of your alternatives, it is essential to obtain quotes close together in time (on same day if feasible) since rates continually move up and down. Also remember that your actual rate is not set until you lock in. Always look at the interest rate and APR together to better understand the loan and the costs associated with them. An experienced loan officer can furnish other advice on Southern CA home loan APR versus interest rate.