When you shop around for a loan, you may encounter the term APR or annual percentage rate. Some people think that interest rates and APRs are the same, but in reality, there are subtle differences between the two.
This article will explain what an APR is, how it's calculated and applied when deciding which loan is best for your goals.
Homebuyers usually look at interest rates attached to loans and pick the ones with the lowest rates. However, the lowest rate doesn't always mean it's the most affordable loan. Relying solely on interest rates to determine affordability ignores other factors like fees attached to the mortgage.
However, when looking at the annual percentage rate, you'll have a more precise and complete picture of how much a loan will cost you.
In other words, APR lets you know all your loan expenses beyond just the interest rate.
An APR shows you how much it costs to borrow money yearly, and it's expressed a percentage similar to how an interest rate is expressed. The difference, however, is that an APR is more inclusive and will always be a higher number than your interest rate. This is because the APR includes both the loan's interest rate plus origination fees and closing costs.
With this in mind, it is better to evaluate a loan based on its APR rather than just the interest rate.
APRs directly affect how much you pay on your loan. A higher APR means you pay more for your loan because it represents the overall expenses included in the loan.
Calculating all of these factors can get overwhelming, which is why it's best to work with a trusted loan advisor. They do all the heavy lifting while you reap the benefits of saving on time and money.
The two types of APRs are fixed and variable APRs.
Fixed-rate APRs, as the name implies, don't fluctuate due to economic factors. You always know how much you'll pay monthly since your loan's APR doesn't change, making budgeting easier than with variable APRs.
A variable APR tends to fluctuate over time, and they are usually tied to a specific index interest rate, usually the U.S.prime rate. Check your loan agreement to determine when your variable APR may change, how often, and what range it can go up.
Variable rates are attractive since they typically start lower than fixed APRs. However, it's advised that you prepare your budget for the rate increases ahead.
APRs are just one factor to consider when choosing the best mortgage for you. And having the proper understanding of how they all impact your mortgage payments and financial health helps you make the best decision.
We're here to help! You can get in touch with our loan advisors to know more about APR and how you can choose the best mortgage for your next home.
We've been helping customers afford the home of their dreams for many years and we love what we do.
Company NMLS: 298205
1421 N Wanda Road, Suite 120-V6
ORANGE, California 92867
Phone: 714-995-9073 / 562-493-2641
Business West Mortgage Company strives to ensure that its services are accessible to people with disabilities. Business West Mortgage Company has invested a significant amount of resources to help ensure that its website is made easier to use and more accessible for people with disabilities, with the strong belief that every person has the right to live with dignity, equality, comfort and independence.
Business West Mortgage Company makes available the UserWay Website Accessibility Widget that is powered by a dedicated accessibility server. The software allows businesswestmortgage.com to improve its compliance with the Web Content Accessibility Guidelines (WCAG 2.1).
Business West Mortgage Company accessibility menu can be enabled by clicking the accessibility menu icon that appears on the corner on the page. After triggering the accessibility menu, please wait a moment for the accessibility menu to load in its entirety.
Business West Mortgage Company continues its efforts to constantly improve the accessibility of its site and services in the belief that it is our collective moral obligation to allow seamless, accessible and unhindered use also for those of us with disabilities.
Despite our efforts to make all pages and content on Business West Mortgage Company website fully accessible, some content may not have yet been fully adapted to the strictest accessibility standards. This may be a result of not having found or identified the most appropriate technological solution.
If you are experiencing difficulty with any content on Business West Mortgage Company website or require assistance with any part of our site, please contact us during normal business hours as detailed below and we will be happy to assist.
If you wish to report an accessibility issue, have any questions or need assistance, please contact us by sending an email to: email@example.com