PA Mortgage APR Vs. Interest Rate

When reviewing options for mortgages, you typically are presented with information on interest rate and APR. These are often misinterpreted as being synonymous, but they are very different. It is helpful for home buyers to compare both. The following are details on PA mortgage APR vs. interest rate.

Defining Interest Rate and APR

Interest rates affect monthly loan payments for the term of a mortgage. This is almost always the rate advertised by lenders. It does not take into account the up-front cost of financing. Fees will differ among mortgage programs and financing companies. For example, there can be points for one mortgage but not another. Other fees that may be included are origination and services charges, just to name a couple. The APR combines the interest rate and specific closing costs, so it is a better reflection of overall cost.

How APR Can Be Used

When comparing a range of financing options from the same or different companies, the APR facilitates a quick comparison. You might be reviewing one option with high fees and another with low fees and a separate interest rate for each. The final expense includes both what you pay up-front plus what you will incur in interest over time. The APR may thus help you you choose a mortgage.

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 couple of facts that borrowers should keep in mind about APR figures. It is formulated over the life of a loan. If you pay off your mortgage in a shorter time frame, the actual APR may be higher. Furthermore, one mortgage that appears to have a lower APR than another could end up having a higher APR based on a fewer number of years. The lowest APR is not always the best option. Since most borrowers do not retain their loan for its entire length, this can be important.

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

Additionally, some APR estimates are not exact. For example, the interest rate on a variable rate mortgage will change but the amount cannot be predicted. Therefore, they are estimated based on the assumption that the amount will remain unchanged,..when in actuality, they will.

Help With PA Mortgage APR Vs. Interest Rate

To make an accurate comparison of loan options, it is essential to ask for quotes close together in time (on same day if feasible) since interest rates continually move up and down. Also keep in mind that they are subject to change unless you lock in. Always review the interest rate and APR together to better understand the program and related costs. A knowledgable mortgage professional can furnish other guidance on PA mortgage APR vs. interest rate.