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Replies (7)
- Steve Felty, "SteveFelty"
- Contributions:396
The difference between rate and APR is the cost of the loan. By comparing the APR of IDENTICAL products (ie 30yr conforming Fixed), the loan with the lower APR will be the lowest cost loan.
As a final step, it's important to make sure the fees are accurately reflected in the APR.
- HomeSand.net, "White Picture"
- Contributions:4398
I don't know how to explain it in the simple language, but as Steve said the APR = Interest Rate + the cost of the loan.
For example, you borrow $100K, 4.125% interest rate, 4.55% APR, 30 years term.
At 4.125% rate, the monthly payment is $484.65
At 4.55% rate, the monthly payment is $509.66
If your mortgage amount is $105,160 @ 4.125% rate, the monthly payment is $509.66
Which meant the closing cost of loan (excluded property tax, home insurance, per diem) is $5,160 (seem high to me). Since you pay out of pocket for the closing cost, therefore your monthly payment is $484.65 (4.125%)
$25.01 ($509.66 - $484.65 = $25.01) is the closing cost which you pay a month in 360 months total of $9003 = $5,160 closing cost + 4.125% interest of the closing cost amount in 30 years.
For example, you borrow $100K, 4.125% interest rate, 4.55% APR, 30 years term.
At 4.125% rate, the monthly payment is $484.65
At 4.55% rate, the monthly payment is $509.66
If your mortgage amount is $105,160 @ 4.125% rate, the monthly payment is $509.66
Which meant the closing cost of loan (excluded property tax, home insurance, per diem) is $5,160 (seem high to me). Since you pay out of pocket for the closing cost, therefore your monthly payment is $484.65 (4.125%)
$25.01 ($509.66 - $484.65 = $25.01) is the closing cost which you pay a month in 360 months total of $9003 = $5,160 closing cost + 4.125% interest of the closing cost amount in 30 years.
- HomeSand.net, "White Picture"
- Contributions:4398
In other words, if some lenders give to you 'no cost refinancing', your interest rate will be 4.55%
- Ed Brophy, "Ed Brophy"
- Contributions:455
APR (Annual Percentage Rate), is the effective interest rate after all fees.
In White Picture's example the $5,160 in closing costs are averaged out over the term of the loan, that's where they got the $25.01 cost.
Your payment is calculated on the actual interest rate 4.125%.
The APR isn't unique to home loans, you'll find APR on credit cards, car loans, etc.
When comparing loan offers, simply look at rates and lender fees, and for the time being, ignore title fees, tax escrows, and all the rest. Those are not controlled by the lender, and while they have no bearing on the type of financing you get, they do affect the APR.
In White Picture's example the $5,160 in closing costs are averaged out over the term of the loan, that's where they got the $25.01 cost.
Your payment is calculated on the actual interest rate 4.125%.
The APR isn't unique to home loans, you'll find APR on credit cards, car loans, etc.
When comparing loan offers, simply look at rates and lender fees, and for the time being, ignore title fees, tax escrows, and all the rest. Those are not controlled by the lender, and while they have no bearing on the type of financing you get, they do affect the APR.
- Clay Branch, "Georgia Loans"
- Contributions:7839
koolboyz, you can compare APR's but 1st you should compare the note rates plus closing costs. If you get a "worksheet" which is basically the old GFE, then only look at the fees in the 800 section with payments going to the lender or Broker, or both, and compare that to the others. Just on it's face the spread between 4.125% and an APR of 4.55% on a conventional 200K loan with no MI ( 20% down ) would mean the broker/lender are collecting 4 points. I suspect you are putting down less than 20%.
If this rate and APR is for an FHA loan with 3.5% down, then the person giving you the APR either doesn't know how to calculate the APR or is understating it on purpose, either way you should get another lender.On a 200K loan amt/FHA loan the APR is aprx 4.819 if they dont charge you an origination fee and is aprx 4.911 if you pay 1% origination fee.
What type of loan are you doing? Conventional, FHA, VA, etc? How much are you putting down and what is the purchase price or loan amt?
If this rate and APR is for an FHA loan with 3.5% down, then the person giving you the APR either doesn't know how to calculate the APR or is understating it on purpose, either way you should get another lender.On a 200K loan amt/FHA loan the APR is aprx 4.819 if they dont charge you an origination fee and is aprx 4.911 if you pay 1% origination fee.
What type of loan are you doing? Conventional, FHA, VA, etc? How much are you putting down and what is the purchase price or loan amt?
- Jayne Combs, "lenderjayne"
- Contributions:41
The APR was set up to help consumers compare costs with other lenders and to protect consumers as well. For instance, have you ever heard an ad where they were offering substantial lower rates then everyone else. Let's say everyone was offering 4.50% rate with an APR of 4.95% and you hear an ad for a rate of 3.50% with a rate of 5.50%. There are two things going on here. It's telling you that while you are getting a "very low" rate, the loan will cost you over the life of the loan then the 4.50% rate. The higher apr could be due to costs to buy it down OR an adjustable loan OR both. But here's the bigger problem, which seems to be getting better, there are certain fees that are included in the APR. If the lender doesn't mark those fees correctly when quoting you then the APR will be wrong. However, typically now with the new laws, it will be caught at docs and if the APR changes more the .125 they have to redisclose it to you so you can change your mind on the loan if you want. Hope that helps some.
- Jeffrey Hogue, "JeffreyHogue"
- Contributions:1242
here is an example. If the rate is 4% and you pay 2 points the interest rate may be 3.5%. The apr will reflect the 2 points you paid as a cost of the overall loan. So the apr would almost be the same in either case, It may be a little lower with the 2 points because you are buying the rate down therefore the overall cost of the loan over 30 years will be less.
What is the difference bet'n Interest rate and APR?
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