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Rates and APR

What is the difference between the interest rate and the A.P.R.?

You’ll see an interest rate and an Annual Percentage Rate (A.P.R.) for each mortgage loan you see advertised. The easy answer to “why” is that federal law requires the lender to tell you both.

The A.P.R. is a tool for comparing different loans, which will include different interest rates but also different points and other terms. The A.P.R. is designed to represent the “true cost of a loan” to the borrower, expressed in the form of a yearly rate. This way, lenders can’t “hide” fees and upfront costs behind low advertised rates.
While it’s designed to make it easier to compare loans, it’s sometimes confusing because the A.P.R. includes some, but not all, of the various fees and insurance premiums that accompany a mortgage. And since the federal law that requires lenders to disclose the A.P.R. does not clearly define what goes into the calculation, A.P.R.s can vary from lender to lender and loan to loan.

The A.P.R. on a loan tied to a market index, like a 5/1 ARM, assumes the market index will never change. But ARMs were invented because the market index changes and makes fixed rate loans cheaper or more expensive to make.

So, A.P.R.s are at best inexact. The lesson is that A.P.R. can be a guide, but you need a mortgage professional to help you find the truly best loan for you.

Note when you’re browsing for loan terms that the A.P.R. will not tell you about balloon payments or prepayment penalties, or how long your rate is locked. Also, you’ll see that A.P.R.s on 15-year loans will carry a higher relative rate due to the fact that points are amortized over a shorter period of time.

Mortgage World Bankers, Inc.
(NMLS Company ID# 7116, www.mwbankers.com) in New York holds a Mortgage Banker License (# B500764) and Mortgage Banker Branch Licenses for Astoria, NY (NMLS ID 558838), (NMLS ID 1081208) and for Flushing, NY (NMLS ID 64452) Branch Offices approved by the New York Department of Financial Services, Phone(212)709-3500; in New Jersey holds a Residential Mortgage Lender License (#9947218) and a Residential Mortgage Lender Branch License for Englewood Cliffs, NJ Branch Office (NMLS ID 336925) approved by the New Jersey Department of Banking and Insurance, Phone: (609)292-7272; in Connecticut holds a Mortgage Lender License (# 12674) approved by the Connecticut Department of Banking, Phone: (860)240-8140; in Florida holds a Mortgage Lender License (# MLD638) approved by the Florida Office of Financial Regulation, Phone: (850)410-9895; and in Pennsylvania holds a Mortgage Lender License (# 29750) approved by the Pennsylvania Department of Banking and Securities, Phone: (717)787-2665.