Shopping for a home loan can be a confusing task, especially when comparing various lenders and programs. While investigating loans, you’ll be presented with both a mortgage APR and a regular interest rate. Both of these numbers can be used to compare one offer to another, and to spot the best deal. But they are two different things.
Hartz Homes would like to answer two questions that can help buyers, especially first-time homeowners who are new at shopping for a mortgage.
- What is the definition of a mortgage APR?
- What is the difference between the APR and the interest rate?
What is a Mortgage APR?
APR stands for annual percentage rate. All loans and credit cards have APRs associated with them. They are designed to give consumers an easier way to compare one offer or product to another, so they can be useful during the shopping and comparison process. They typically include the interest rate plus other lending fees, presented as an annualized percentage rate.
Definition: The mortgage APR is the annual rate charged on a home loan, expressed as a single percentage. The APR shows you the full cost of financing, because it includes the mortgage interest rate plus other fees or costs applied to the loan.
APR Versus Mortgage Rate: What’s the Difference?
Now you know what an APR is. Let’s move on to question #2. What is the difference between the APR and the standard mortgage rate?
When you take out a home loan to buy a house, the lender will add on various fees and charges. The APR for a home loan typically includes the following:
- Points and prepaid interest
- Origination fees
- Attorney and notary fees
- Document preparation fees
- Private mortgage insurance
These additional costs can increase the size of your monthly payments. So, you obviously need to know about them in advance. After all, you can’t compare one mortgage offer to another until you know the full cost of the loan.
That’s where the annual percentage rate comes in. The mortgage APR gives you a more complete picture of the annual cost of the loan, which allows you to more accurately compare one product to another.
Lender ‘A’ might offer you a lower interest rate than Lender ‘B,’ but that doesn’t automatically make it the best offer. You still have to account for those additional fees mentioned above. If Lender ‘A’ offers you a slightly lower rate but charges you significantly more in fees, you end up paying more — even though the mortgage rate was lower.
If you compared the two loan offers based on the mortgage rate alone, you would think Lender ‘A’ was offering you the best deal. But if you looked at the mortgage APR for each loan, you would see that this was not true at all.
That’s why the annual percentage rate is so important to borrowers who are shopping for a home loan. It is the one common denominator by which you can compare loans side by side, comparing apples to apples.
Please check out these new home communities from Hartz Homes:
Armitage Pointe of Addison, Illinois (Chicago area new home construction)
Bella Vista Townhomes of Bolingbrook, Illinois (Chicago area new home construction)
Heather Glen of New Lenox, Illinois (Chicago area new home construction)
Hibernia of New Lenox, Illinois (Chicago area new home construction)
Lago Vista of Lockport, Illinois (Chicago area new home construction)
Leigh Creek of New Lenox, Illinois (Chicago area new home construction)
Manchester Cove of Mokena, Illinois (Chicago area new home construction)
Marquis Pointe of Montgomery, Illinois (Chicago area new home construction)
Marywood Meadows of Montgomery, Illinois (Chicago area new home construction)
Nantucket Lakes of New Lenox, Illinois (Chicago area new home construction)
Oliviabrook of Oakbrook Terrace, Illinois (Chicago area new home construction)
Park West of Manteno, Illinois (Chicago area new home construction)
Playa Vista of Plainfield, Illinois (Chicago area new home construction)
Sky Harbor of New Lenox, Illinois (Chicago area new home construction)
Whisper Creek of Mokena, Illinois (Chicago area new home construction)
Hartz Homes has new home communities in:
Addison, Illinois (Chicago area new home construction)
Aurora, Illinois (Chicago area new home construction)
Bolingbrook, Illinois (Chicago area new home construction)
Lockport, Illinois (Chicago area new home construction)
New Lenox (Chicago area new home construction)
Manteno, Illinois (Chicago area new home construction)
Mokena, Illinois (Chicago area new home construction)
Montgomery, Illinois (Chicago area new home construction)
Plainfield, Illinois (Chicago area new home construction)
Oakbrook Terrace (Chicago area new home construction)