Annual Percentage Rate (APR) is a key factor in understanding the total cost of a mortgage. It includes the interest rate and other fees associated with the loan. Knowing how APR works helps borrowers compare different mortgage offers more effectively.
What Is APR?
APR represents the yearly cost of borrowing expressed as a percentage. It encompasses the interest rate, points, mortgage broker fees, and other charges. This comprehensive measure provides a clearer picture of the true cost of a loan.
How APR Affects Your Mortgage
A higher APR indicates a more expensive loan, while a lower APR suggests a cheaper one. Even if two loans have the same interest rate, differences in fees can lead to different APRs, affecting the overall cost over the loan term.
Factors Influencing APR
- Loan amount
- Loan term
- Type of interest rate (fixed or variable)
- Points paid upfront
- Additional fees and closing costs