The Beginner’s Guide to Understanding APR and Mortgages

APR and Mortgages: APR stands for Annual Percentage Rate, and it represents the cost of a mortgage over the life of the loan, including the interest rate and other associated fees or charges. 

APR is a standardized way of expressing the cost of a mortgage that considers both the interest rate and other fees or charges associated with the loan.

APR and Mortgages: APR Isn’t Always the Most Crucial Factor. 

Additional factors to consider when comparing mortgages include:

• The interest rate itself.
• The length of the loan.
• Any prepayment penalties.
• Any other terms and conditions that may be important to you.

Different mortgages may have additional terms and conditions, so it’s worth considering all relevant factors when comparing mortgages. 

When comparing your available mortgage options, APR helps you decide which mortgage best fits your needs and financial situation.

Example: Let’s say you compare two different mortgages with a 30-year term and a $200,000 loan amount. Mortgage A has an interest rate of 5.5% and an APR of 5.8%, while Mortgage B has an interest rate of 5.3% and an APR of 5.9%.

Which is the better option? The answer can be more complex than it may seem by just looking at the numbers.

A Higher APR Can Be Cheaper When Comparing Loans

Sometimes, a higher APR offers a better mortgage option. Here are a few examples:

1. A mortgage with lower closing costs: A mortgage with a higher interest rate and a higher APR may have lower closing costs than a mortgage with a lower interest rate and a lower APR. Not all closing costs “count” in the APR calculation. The higher APR mortgage may be better if you have limited cash to cover closing costs.
2. A mortgage with no prepayment penalty: Some mortgages may have a lower interest rate and APR, but they also come with prepayment penalties, making it expensive to pay off the loan early. If you plan to pay off your mortgage early, a mortgage with a higher interest rate and a higher APR but no prepayment penalty may be the better option.
3. A mortgage with better terms: Sometimes, a mortgage with a higher interest rate and APR may have better terms and features that make it more attractive than a lower APR mortgage. For example, a mortgage with a higher APR may offer a longer fixed-rate period, a lower down payment requirement, or other features that make it more beneficial for your specific financial situation.
4. An FHA loan with upfront Mortgage Insurance can create a high APR.

 

If you want to get confused looking at APRs, compare the APR for an adjustable-rate mortgage to an APR for a conventional FHA loan.

The APR on an Adjustable-Rate-Mortgage (ARM) will almost always be lower than what a fixed-rate loan shows. Sometimes the APR on an ARM is lower than the loan interest rate.

Does that mean the Adjustable-Rate-Mortgage (ARM) is cheaper than a Fixed-Rate-Loan?

APR and Mortgages – Don’t Get Ripped Off

Your Mortgage Professional must be willing to review how your APR is calculated, item by item. This will help you decipher the APR you’re offered so you can choose the best mortgage.

A mortgage is a long-term financial decision, so it’s essential to understand all the costs to avoid unpleasant surprises later.

Find a mortgage professional who will take the time to review the costs and terms of their mortgage quote in detail.

APR is just one of several factors to consider when shopping for a mortgage

Remember that APR is just one factor to consider when comparing mortgages, and it doesn’t always completely describe the costs of a mortgage.

Contact Steve Silver at Silver Mortgage, 1-800-920-5720, for more information about APR and Mortgages in Texas or Florida.

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