Home Buying in 07661>Question Details

Dms, Home Buyer in New York, NY

what's the difference between the rate and the apr?

Asked by Dms, New York, NY Tue Jul 26, 2011

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The Interest rate you are charged is simply the Interest divided by the Principal: For example; if you are charged $50 for a $1000 loan, you are paying 5% interest.

APR will include additional costs; things like prepaid interest, private mortgage insurance or closing fees.

So you will see advertisements like I.R 5%, APR 5.12%.

I hope this helps.
1 vote Thank Flag Link Tue Jul 26, 2011
When you get a mortgage, you are charged two different rates–the annual percentage rate and the interest rate. Understanding the difference between the two rates is important and will help you make an informed decision when shopping for the right lender and the right loan.
Interest Rate
The interest rate is the yearly rate a lender charges for permitting the borrower to use money for a specific length of time. The rate is calculated by dividing the total amount of interest charged by the loan amount. For example, if a lender charges a client $60 a year on a loan of $1000, then the interest rate would be (60/1000) x 100% = 6%.
Annual Percentage Rate
The APR is a little more complex and is comprised of two factors: it includes your actual interest rate and any additional costs. Additional costs might include things like prepaid interest, private mortgage insurance or closing fees. Your APR represents the total cost of credit on a yearly basis after all charges are taken into consideration. It is typically higher than your actual interest rate because it includes these additional items and assumes you will keep the loan to for the full term.
When shopping for a mortgage–”especially if it’s your first time”/home-buying/first-mortgage–it’s important to understand the terminology surrounding the mortgage process. So do your research. Find out as much as you can so that you understand the loan process to make an educated and informed decision when it comes time to choose a loan and lender.
0 votes Thank Flag Link Tue Jul 26, 2011
Here are some more details on what the APR is: http://www.trulia.com/blog/elliott_r_oliva/2011/07/what_is_a…
0 votes Thank Flag Link Tue Jul 26, 2011
The rate is the percentage charged for the money borrowed; the apr includes the interest rate plus additional costs, such as closing fees, etc., and denotes the total credit costs on a yearly basis. For additional information, consult with your loan officer.
0 votes Thank Flag Link Tue Jul 26, 2011
Hi, The rate is what you will pay on a monthly basis, the Annual Percentage Rate is a finance charge expressed as an annual rate, basically interest for a year.

Christopher Pagli
Licensed Associate Broker
Accredited Buyer Representative
GREEN Designated Agent
William Raveis Legends Realty Group
914.406.9023
0 votes Thank Flag Link Tue Jul 26, 2011
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