Understanding the difference between your annual percentage rate (APR) and the interest rate on your mortgage can save you thousands. Both the APR and interest rate measure important but distinct costs associated with your home loan.
Furthermore, knowing what is tracked by each measurement may impact which lender you choose. We at Riddle Realty Group have a trusted loan officer we recommend, but if you already have someone you like, know, and trust, we welcome you to do a side-by-side comparison of lenders.
When you do compare lenders, however, make sure you’re comparing apples to apples. Send your complete information to both lenders, and match interest rates against interest rates and APRs against APRs.
“The main difference between the two is that an interest rate calculates the monthly payments for your loan, whereas the APR calculates the total cost of your loan.”
In a nutshell, the interest rate is the cost of borrowing the principal loan amount of your home loan. Though variable, it is always represented as a percentage.
The APR, however, is a broader measure. It encapsulates all of the costs associated with getting a home loan. These include lender fees, some loan-related closing costs, discount points, etc. APR is also expressed as a percentage.
In summary: The main difference between the two is that an interest rate calculates the monthly payments for your loan, whereas the APR calculates the total cost of your loan.
If you have any questions about this topic or want to get connected with our lender, feel free to give us a call or send an email. We’re always here to help.