When looking for home loans, you typically see information on interest rate and APR. These are commonly misinterpreted as being synonymous, but they actually have different calculations. It is important for home buyers to compare both. The following is an overview of MA home loan APR and what it means.
Interest Rate vs. APR
Interest rates apply to monthly mortgage payments for the length of a loan. This is usually the rate advertised by mortgage companies. It does not include the up-front cost of a loan. Fees can differ among loan programs and financing companies. For example, there can be pre-paid interest for one loan but not another. Other costs that may be included are loan origination and services fees.. The APR combines the interest rate plus certain closing costs, so it is a better indication of overall cost.
How APR Is Used
When assessing various financing options from the same or different lenders, the APR facilitates an easy comparison. You may be presented with one option with high fees and another with low fees and a separate interest rate corresponding to each. The real cost includes both what you pay up-front and what you pay over time. The APR may thus help you you select a loan.
| Loan Amount | Term | Interest Rate | Up-front Cost | APR |
|---|---|---|---|---|
| 100,000 | 30 years | 5 percent | 1,000 | 5.09 percent |
| 100,000 | 30 years | 4.5 percent | 4,000 | 4.85 percent |
APR Disclaimer
There are a few things that consumers must keep in mind about how APR is determined. It is formulated using the term of a mortgage. If you pay off your loan in a fewer number of years, the final APR will be more. Also, one mortgage that seems to offer a lower APR than another might end up having a higher APR if the time frame were changed. The lowest APR is not automatically the better option. Because most home owners do not keep the same loan for its entire length, this is an important thing to keep in mind.
| Loan Amount | Term | Interest Rate | Up-front Cost | APR |
|---|---|---|---|---|
| 100,000 | 5 years | 5 percent | 1,000 | 5.41 percent |
| 100,000 | 5 years | 4.5 percent | 4,000 | 6.12 percent |
Secondly, some APR estimates are not precise. For example, the interest rate on an adjustable rate mortgage will fluctuate but the amount is not predictable. The APR on these loans are estimated using the starting rate.
More Information on MA Home Loan APR And What It Means
To perform a good comparison of loan options, it is essential to ask for quotes within a similar time frame (on same day if possible) as rates change daily. Also remember that your final rate is not determined unless you lock in. Always review the interest rate and APR jointly to better assess cost. A knowledgable loan officer can furnish further guidance on MA home loan APR and what it means. For further information contact Christopher Graves at Emery Federal Credit Union via phone at 781-759-1200 x22 or email christopher.d.graves@gmail.com.