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Knowledge Base->Mortgage Lender->APR and Rate

      It could be difficult to compare mortgage offers when you’re shopping for a mortgage. In most common scenarios, it’s quite misleading to compare loans by only looking at the interest rate. The reason is your interest rate only including part of the overall cost of a mortgage. A better means of comparison is APR (Annual Percentage Rate).APRandRate.jpg
      The APR formula combines a loan’s interest costs with other fees charged by a lender over the life of the loan, and expresses them as a yearly percentage. The APR is therefore a better reflection of the true cost of borrowing than interest rates alone. So it is a good benchmark for comparing loan offers.
      When you try to get a mortgage, be extreme cautious about hidden fees.
      Here’s an example of comparison between APR and Interest Rate in the case of two loan offers for a 30-year, fixed-rate loan of $150,000:
      Offer A: Quotes an interest rate of 6.5 percent, plus one discount point and an origination fee of 2 percent.
      Offer B: Quotes an interest rate of 6.4 percent, but charges two discount points, the same origination fee, and higher closing costs.
      While the second loan may carry a lower interest rate and a lower monthly payment, a comparison of the APRs indicates that it is actually slightly more expensive overall because of the higher upfront fees:
Offer A Offer B
Interest rate 6.5% 6.4%
Monthly payment $948.10 $938.26
Discount points 1 point (1% of $150,000) = $1,500 2 points (2% of $150,000) = $3,000
2% origination fee $3,000 $3,000
Other closing fees $800 $1,150
APR 6.837% 6.851%


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