The Significance of the Annual Percentage Rate (APR) When Shopping for a Mortgage
Mortgages come with a wide array of costs beyond the interest that the lender charges for the use of its money, and understanding the difference between the interest rate and the APR is essential when shopping for a mortgage.
Every mortgage you see advertised includes information about two rates: the interest rate and the annual percentage rate (APR). Simply put, the interest rate is the interest the lender charges you on the money you borrow; this is the rate on the mortgage contract you sign, and it's what determines your monthly payment.
APR, on the other-hand, is used as a disclosure of your interest rate plus closing fees over the loan term. The APR is intended to reflect the true cost of the loan. If you compare the interest rate to the APR on any specific loan you can easily determine the percentage of fees being charged by the lender.
Expressing the cost in an APR ensures the client that the lender is being totally transparent. The APR is therefore a better reflection of the true cost of the loan and should be highly considered when comparing similar loan options among multiple lenders.
The Federal Truth in Lending Act requires lenders to include APR in all mortgage promotions, and the APR must have equal prominence with the nominal rate in all advertising material.
Coming soon… Applying for a Mortgage on an Investment Property
Thanks to Envision Mortgage for this article. https://www.envisionmortgagecorp.com/