What is the difference between the interest rate and the A.P.R.?

You'll see an interest rate and an Annual Percentage Rate (A.P.R.) for each mortgage loan you see advertised. The easy answer to "why" is that federal law requires the lender to tell you both.

The A.P.R. is a tool for comparing different loans, which will include different interest rates but also different points and other terms. The A.P.R. is designed to represent the "true cost of a loan" to the borrower, expressed in the form of a yearly rate. This way, lenders can't "hide" fees and upfront costs behind low advertised rates.

While it's designed to make it easier to compare loans, it's sometimes confusing because the A.P.R. includes some, but not all, of the various fees and insurance premiums that accompany a mortgage. And since the federal law that requires lenders to disclose the A.P.R. does not clearly define what goes into the calculation, A.P.R.s can vary from lender to lender and loan to loan.

So, A.P.R.s are at best inexact. The lesson here is, that A.P.R. can be a guide, but you need a mortgage professional to help you find the truly best loan for you.

For example, have you ever heard or read an ad from a broker claiming to be offering "5.5% 30 year fixed rate?"  If you've shopped around for a low rate loan, maybe you've been told 6%, so you think you have found a real bargain at 5.5%.  The lowest rate must be the best deal, right?  Wrong.  Read the fine print in the ad, or listen to the entire ad if it's radio or television.  See what the APR is.  If it's higher by more then about .50 (depending on loan amount) then they are charging you a discount point (or portion of a point) or more for that rate.  That's not necessarily a bad thing, but can be misleading if you are giving them your business solely because they are promising you the lowest rate.  That rate is going to cost you and probably another lender could give you that same rate or better for the same cost.  Be an educated consumer and ask if the rate is at a cost.

Note when you're browsing for loan terms that the A.P.R. will not tell you about balloon payments or prepayment penalties, or how long your rate is locked. Also, you'll see that A.P.R.s on 15-year loans will carry a higher relative rate due to the fact that points are amortized over a shorter period of time.

When you come to us for your mortgage financing, we explain exactly what fees are involved in your purchase or refinance and the details about each loan program that you qualify for. We are about educating you so that you are armed with the facts and can make the best decision for you!