When buying a brand-new house, you’ll have a lot of things to look out for. One of these things is the interest rate and APR of the mortgage you’re going to avail.
If you’re not sure what they are, you’re not alone. There are many people who don’t know the difference between an interest rate versus an APR mortgage.
Don’t worry; we’re here to help. Below are the differences between an interest rate vs APR mortgage. Read on to know more.
Defining Interest Rate and APR
Interest rate vs APR mortgage are the two main ways that lenders charge interest on loans.
APR is the Annual Percentage Rate and represents the true cost of borrowing money. It includes not only the interest rate but also any other fees that may be charged, such as origination fees or closing costs.
The interest rate is the interest charged on the loan itself and does not include any other fees.
How Do They Differ?
The mortgage interest rate is the cost you will pay yearly for borrowing the money, expressed as a percentage. The APR is the annual cost of the loan, including fees charged upfront.
The APR is usually higher than the interest rate because it includes the fees.
Which Is More Important?
So, which is more important? That depends on your individual situation. If you’re comparing two loans with different interest rates, the one with the lower rate will likely cost you less in the long run.
But if you’re trying to decide between two loans with different APRs, the total cost of the loan may be a better way to compare them.
How Do They Affect Your Mortgage?
When it comes to your mortgage, the interest rate and APR (annual percentage rate) are both important factors to consider.
The interest rate is the percentage of your loan that you will pay in interest, while the APR includes the interest rate plus other fees and charges.
Both affect your monthly mortgage APR payment and the total amount you will pay over the life of your loan. Typically, a lower interest rate will result in a lower monthly payment, while a higher APR will result in a higher overall cost.
Which Should You Use When Comparing Mortgage Offers?
When comparing mortgage offers, you should always compare the APR rather than the interest rate, to get a true picture of the cost of the loan.
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Know the Difference Between Interest Rate vs APR Mortgage
If you’re confused about whether to get an interest rate vs APR mortgage, this article can help clear things up. The main difference is that an interest rate is the percentage of your loan that you’ll have to pay, while APR includes interest and other fees.
In most cases, you’ll want to get an interest rate that’s lower than your APR. However, it’s important to compare both numbers before you make a decision.
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