This is the fifth installment in an ongoing series on mortgage basics. On my mortgage website, I cover a host of topics on my frequently asked questions page. Since this is the most popular page on my site, I thought it might be a nice way to begin my blog. You can find the entire list of FAQs here: Arizona Mortgage Pro FAQs. I will continue this series covering one topic per post.

What is the difference between rate and APR?

In my experience, APR is one of the most misunderstood concepts surrounding mortgages. I won't get into the specific calculations of how APR is determined (that is readily available online), but I will give a general idea of what is included and how you should use it. The term APR stands for Annual Percentage Rate. It is defined as the cost of obtaining credit. In other words, how much more is it costing you to finance the home versus paying all cash?

The APR is calculated by combining both the actual interest rate and the upfront fees associated with financing into one figure, shown as a percentage. One important thing to note is that APR assumes you will keep the loan for the full term, so in the example of a 30 year fixed mortgage, it assumes you will make 360 monthly payments. It may not be the best shopping tool if you plan on being in your home for a shorter period of time or paying extra on your principal.

I think it is more beneficial to do a real life analysis with my borrowers. By discussing how long a borrower plans to be in the home and doing an actual calculation, we can determine which loan and rate combination would work best and save them the most. Please call or email if you would like to have a free, no obligation consultation on rate/program options.

Thanks for reading my blog!

John Moran

Senior Loan Officer

3920 S Rural Rd #110 Tempe, AZ 85282

Direct: 480-300-4520

Fax: 602-904-7741

Website: www.azmortgagepro.com

NMLS#1059293 AZ#LO-0924433