APR Basic For Houston First Time Home Buyers

Good morning, let's take a quick look at the difference between interest rates and annual percentage rates (APR). Interest rate is basically the partial cost you will pay to borrow money to buy, in this case, your new home. It does not include any other fees that is connected with the mortgage loan.

For example, let's say you are borrowing $400,000 to purchase your home and your interest rate is 6 percent. The 6 percent is the cost to borrow the $400,000.

On the other hand, the Annual Percentage Rate (APR) reflects the complete cost you will pay when you borrow the money to purchase your new home. This includes points, interest rate, origination fees, and agency fees paid to the lender, etc.

For example, you are borrowing $400,000 to purchase your new home and your interest is 6 percent, in addition, to that 6%, there is 1 percent origination fee along with a few other fees that total $1500. With these added fees, your APR is now more than 6.1 percent. This means you are no longer just paying, 6 percent.

Generally, the APR is mainly controlled by the lender. You can always ask your lender what is included in your APR. As you can see from above, your APR is calculated using your interest rate, fees and any points you choose to pay upfront. Because of this, you APR will almost always, be higher than your quoted interest rate.

In conclusion, the main difference between your interest rate and APR, is, the APR includes additional fees you need to pay to get your mortgage. Because interest rates are lower than APR, advertisers tend to always advertise the interest rates. Keep in mind however, when doing comparison mortgage shopping, it will be best to do so using the APR.

Helping you to make powerful and informed decisions. Thank you so much for stopping by. Until next time...Diana

Image: By Diana for Firsthomehouston.com