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This might sound like a stupid question but whats the difference between interest rate and apr? Thnx

by gavinls582 from Channelview, Texas. Feb 26th 2021 Reply


Bert Carpenter (BertCarpenter)
#37 ranked lender in Arizona - 2,236 contributions

Not a stupid question at all. The interest rate is also referred to as the 'Note Rate'. This is rate that is used in the calculation to determine how much interest (in dollars) the bank gets to collect on the loan. The Annual Percentage Rate (APR) is always higher because of a crazy formula that must be used to determine it. The concept is to include items that you pay at the beginning for the loan, so you can measure the cost of one loan option with another. The APR includes certain costs charged by the lender, title company and others. Essentially these costs are treated as though they are actual interest. The theory is that that for loan with the same loan amount and loan term, the one with the lower APR is the better deal, but there are circumstances where this is not necessarily true. I Hope this helped. ~ Bert Carpenter, The LoansA2z Team of NEXA Mortgage ~ NMLS 40586 ~ Licensed in AZ, CA, GA, IL, OR & WA... In fact, NEXA is licensed in all states except MA and NY and we are pending approval in VA, so give us a call. ~ www.ApplyYes.com 480-889-9000.

Feb 26th 2021
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Joe Metzler (JoeMetzler)
#1 ranked lender in Minnesota - 4,299 contributions

APR is one of the most complicated and confusing things in financing. The way I usually explain it is that the rate (note rate) is the actual rate. APR (Annual percentage rate) takes the note rate, then uses a goofy calculation of some of your closing costs to give you the APR. IN THEORY, if two lenders give you the same note rate, the one with the lower APR has lower closing costs. In reality, it is a very poor way to pick a lender. First, it can be easily massaged. Next, starting with a lower note rate, but maybe having twice as much in closing costs will still give you a slightly lower APR - but did you really want to pay twice the closing costs. next is time value of money. Here is a link to an article I wrote maybe 20-years ago explaining why picking a loan by APR usually ends up costing you money. Find it at https://joemetzler.com/what-is-apr/ I lend in MN WI IA ND SD. Find me at JoeMetzler.com - Cambria Mortgage NMLS 274132

Mar 4th 2021
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