What is the difference? My new loan states that my apr is going to be 6.18% and my interest rate is 5.00%

Asked by Kathleen, San Gabriel, CA Wed Jul 6, 2011

Can anyone explain what this means?

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6
Donne Knudsen, , Simi Valley, CA
Wed Jul 6, 2011
Kathleen - I was going to say the same thing as Gregorio. Depending on what your fees and costs are, a difference between a 5% rate and a 6.18% APR may or may not be that unusual. As Gregorio mentioned, if this is an FHA loan a 1% or more discrepancy is not all that unusual if you are financing your UFMIP (which most borrowers do).

However, if this were an FHA loan, I would question the 5% interest rate more than I would the spread between the rate and the APR. Right now, FHA rates are lower than that even with a credit score adjustment. I just locked one of my FHA buyers in at 4.375% and that was with a rebate (YSP) that was more than enough to cover their lender fees.

However, if this were a conventional loan with an LTV higher than 80%, then a 5% rate with some adjustments wouldn't be out of the ballpark. As someone else mentioned, without more info (which I am not requesting), its hard for anyone here on Trulia to answer your question based on the limited info you've provided.
0 votes
Doug Zeller, Agent, *, CA
Wed Jul 6, 2011
APR is part of the Truth-in-Lend Act implemented by Regulation Z of the Federal Reserve Board. APR is the nominal rate of 5% plus many of the financially related closing cost. Your lender should detail and explain these cost to you. Calculations seem to vary and some cost are negotable?
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Gregorio Den…, , San Diego, CA
Wed Jul 6, 2011
"If your loan is an adjustable rate, starting at 5% this may account for the large discrepancy between 5% and 6.18%."

That's not correct. An ARM at 5% would have an APR lower than 5%. this is obviously an FHA mortgage because the APR includes the up front MIP and the monthly mortgage insurance as well as the fees. The spread between the 5% and 6.18% is normal for an FHA mortgage. I would be more concerned with the 5% interest rate as that seems excessive even for someone with very poor credit. I would suggest you get another quote.

APR also stands for Annual Percentage Rate, not Average Percentage Rate. You can read my blog about understanding APR here: http://www.trulia.com/blog/gvd/2010/08/understanding_apr
Web Reference:  http://WeFixRates.Com
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Dan Tabit, Agent, Issaquah, WA
Wed Jul 6, 2011
Kathleen,
It means you are paying a lot of fees. The loan payment is based on the amount you borrow and your "note rate,” which in this case is 5%. When all the payments are added up and the loan fees are added to it and then divided by the number of payments, it's as if you were paying an annualized rate of 6.18%.
In most cases the APR & Note Rate are much closer than this. Without seeing your file including your credit and understanding your situation, I can't say whether this makes sense or not. I would encourage you to shop a bit because both numbers seem high to me.
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My NC Homes…, Agent, Chapel Hill, NC
Wed Jul 6, 2011
The interest rate indicates the rate your loan is being charged. The APR includes all additional fees being charged by the bank in connection with your loan. If your loan is an adjustable rate, starting at 5% this may account for the large discrepancy between 5% and 6.18%. You may also be rolling in all your closing costs into your loan, which might explain the difference. You should not hesitate to speak directly with your lender for a more detailed explanation. Without all the information related to your loan, (which I would not suggest posting on the internet) there is only so much that I can explain. Hope this helps.
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Brenda Feria, Agent, Richmond, VA
Wed Jul 6, 2011
Kathleen, Federal law demads that banks show you not only what your interest rate is over the lifetime of the loan but also the rate considering all of the pre-paid interest (points and items associated with obtaining your loan). This allows you to shop around and see the real difference between what one bank is offering and another. Your rate should remain 5%, 6.18% is the Average Percentage Rate or APR. Even if the rates do not vary between banks, the APR might vary quite a bit.
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