If you’re in the market for a mortgage, you’ve probably heard the term APR thrown around. But what exactly is APR, and why is it important when it comes to your mortgage? In this blog, we’ll explore what APR is, how it’s calculated, and why it matters when it comes to your mortgage.
What is APR?
APR stands for Annual Percentage Rate. It’s a measure of the total cost of your mortgage over the course of a year, expressed as a percentage. The APR takes into account not just the interest rate on your mortgage, but also any fees or other charges associated with the loan.
How is APR calculated?
The calculation of APR can be complex, as it involves taking into account a number of different factors. Some of the factors that may be included in the calculation of APR include:
- The interest rate on the loan
- The length of the loan term
- Any fees associated with the loan, such as origination fees, points, or closing costs
- Any other charges or costs associated with the loan
All of these factors are taken into account to arrive at a single percentage rate, which represents the total cost of the loan over the course of a year.
Why does APR matter?
APR is an important factor to consider when you’re shopping for a mortgage because it gives you a way to compare different loans on an apples-to-apples basis. If you’re comparing two mortgages with different interest rates, for example, the APR can help you determine which one is the better deal overall.
In addition, the APR can help you understand the true cost of your mortgage over the long term. While the interest rate is an important factor to consider, it’s not the only cost associated with a mortgage. The APR takes into account all of the costs associated with the loan, which can give you a more accurate picture of how much you’ll be paying in total over the life of the loan.
How can you find the APR on your mortgage?
When you’re shopping for a mortgage, lenders are required to disclose the APR along with other important information about the loan. You can find the APR listed on the Loan Estimate and Closing Disclosure documents provided by the lender. These documents will also include information about any fees or other costs associated with the loan, which can help you calculate the total cost of the loan over the long term.
Tips for comparing APRs
When you’re comparing APRs from different lenders, there are a few tips that can help you make the most informed decision:
- Look at the overall cost of the loan: The APR is just one factor to consider when you’re shopping for a mortgage. Make sure you’re also looking at other factors, such as the interest rate, fees, and closing costs.
- Consider the length of the loan term: The length of the loan term can also have an impact on the overall cost of the loan. A longer loan term may have a lower monthly payment, but it can also result in paying more in interest over the long term.
- Compare apples-to-apples: When you’re comparing APRs, make sure you’re comparing loans with the same terms and conditions. This will give you a more accurate picture of the total cost of each loan.
- Don’t forget about customer service: While the APR is an important factor to consider, it’s not the only one. Make sure you’re also considering the reputation and customer service of the lender you’re considering.
Conclusion
Understanding APR is an important part of the mortgage shopping process. By taking into account all of the costs associated with the loan, the APR can help you compare different mortgages on an apples-to-apples basis and make the most informed decision for your financial situation. Make sure you’re considering all of the factors that go into the overall cost.
