What's the Difference Between Interest Rate and APR?

The APR calculation is complicated and there is a formula for it that I would challenge anyone in the mortgage business to really use correctly. However, a basic understanding of the things that impact the APR is helpful in insuring that you are comparing apples to apples in choosing a loan and basically is the cost of that money the day you are signing amortized over the life of the loan, the higher the APR the higher the closing costs are in most cases. The APR factors in the pre-paid finance charges of a loan along with the note rate to arrive at the yearly cost of borrowing. Yes, it assumes that you will keep the loan for whatever the original term is so if you payoff a loan in 5 years vs. the term assumed in the APR calculation, the APR over the 5 years will be higher than what you thought originally. Basically, the less time you plan to be in a loan, the lower you will want the costs to be. Otherwise, you are paying for interest rate savings that you will never see. Please give me a call or shoot me an email if you have any questions..Ralph Guertin Bayburg Financial 954-274-7725 or Ralphg@bayburg.com

An annual percentage rate (APR) is a broader measure of the cost to you of borrowing money. The APR reflects not only the interest rate but also the points, mortgage broker fees, and other charges that you have to pay to get the loan. For that reason, your APR is usually higher than your interest rate.

In the simpliest terms I could put it (since it's ALWAYS confusing) is that the APR has all the fees associated with the loan expressed as a percentage. Your interest rate is the actual rate you are paying for borrowing the money to purchase the home.

The "Note Rate" is what determines your principal and interest payment.. the APR (Annual Percentage Rate), is the governments interpretation of what the note rate would be if you add other costs and fee's that deem to be "hidden interest charges".. all "Lender Charges", underwriting, processing, origination points and discount points are all included.. Also certain title fee's are also included. The APR is supposed to be an easy way to compare two different loans, however, because the rules are different when your dealing with a broker vs. a banker, that it's very deceptive.. With a broker, every dollar the broker receives is listed on the closing documents.. however, that's not the case with the banks.. You could have a 4.5% / 5.25% Note/APR with a broker, and have a 4.5%/4/85% Note/Apr with a bank, and the brokered loan could be the better deal.. For this reason, you should NOT use APR to determine whether or not one deal is better than the other.. instead, compare ALL the loan costs and the note rate, side by side.. this is the only way to know for sure.. I'm a preferred Lender with Arizona and California being my primary markets. If you or someone you know is looking for financing options, feel free to contact me or pass along my information. 480-287-5714 WilliamAcres.com NMLS# 226347 / RPM Mortgage NMLS 1541014 / AZMB0121893