What is the difference between a mortgage interest rate vs APR?
The Mortgage Minute is weekly informational series presented by Laura Borja, Your San Diego home loan expert.
In this week’s The Mortgage Minute we will take a look at the difference between an interest rate vs APR.
If you’ve ever gone to a real estate transaction or even looked at advertisements, I’m sure you noticed that both interest rate and APR are listed in the paperwork or the advertisement.
So what is the difference between the two?
Prefer video to reading? Then check out this video – https://youtu.be/jnmPLqBI8DQ
This is how their Consumer Finance Protection Bureau, the agency that oversees lending in the U.S., describes the difference between an interest rate vs APR.
Essentially the interest rate is what determines the repayment payment of the loan and how much interest you paid during the life of that loan.
The APR on the other hand, includes both the interest as well as certain costs which are then factored into the calculation.
Most the time, your APR is going to be higher than your interest rate.
The difference between interest rate vs APR is even more drastic if you have a loan that has mortgage like an FHA or conventional loan. The same applies for VA loans and USDA loans that have an upfront funding fee.
Does the APR affect your payment?
NO it does not.
Your mortgage payment is calculated based on:
- starting amount of your loan
- the term of repayment
- your interest.
So, there you have it. A quick look at the difference between interest rate vs APR.
If you have any questions about this or any other mortgage related topic, by all means, feel free to contact me.
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Thanks for checking out this week’s The Mortgage Minute, don’t forget to subscribe, and I will see you next week.