Ipswich MA Mortgage Interest Rate Versus APR

When evaluating loans, you typically come across information on interest rate and APR. These are usually misinterpreted as being the same, but they are actually calculated differently. It is helpful for borrowers to understand both. The following is an overview of Ipswich MA mortgage interest rate versus APR.

How Interest Rates Differ from APR

Interest rates apply to monthly loan payments for the length of a mortgage. This is almost always the rate advertised by companies. It does not reflect the up-front cost of a mortgage. Fees can vary between mortgage programs and lenders. For example, there may be points for one program but not another. Other charges that might be included are origination and services fees, just to mention a couple. The APR reflects the interest rate and particular fees, so it is a better estimation of overall expense.

How to Use APR Information

When assessing various loan options from one or multiple companies, the APR is a figure that can be used. You may be presented with one option with high fees and another with low fees and a different rate for each. The real cost includes both the up-front fees plus what you pay in interest over the term of the loan. The APR may therefore assist with the analysis.

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

The Nuances Of APR

There are some facts that borrowers should keep in mind when it comes to how APR is determined. APR is compiled based on the term of a mortgage. If you were to pay off your mortgage sooner than that length, the actual APR will be more. Additionally, one loan that appears to offer a lower APR than another could end up having a higher APR based on the shorter time frame. The best APR is not always the best option. Since most borrowers do not retain their mortgage for its entire term, this is an important thing to mention.

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

Secondly, some APR calculations are not definite. For instance, the interest on a variable rate loan is likely to alter but that change is unknown. Therefore, they are calculated based on the assumption that rates will remain the same,..when in actuality, they will.

More Information on Ipswich MA Mortgage Interest Rate Versus APR

To complete a good comparison of your APRs, it is important to ask for quotes within a short time frame (on same day if possible) since interest rates change daily. Also remember that rates are subject to change unless you lock in. Always review the interest rate and APR jointly to better understand the mortgage and related costs. An experienced loan officer can provide additional guidance on Ipswich MA mortgage interest rate versus APR.

About Editor-John P. Wells

I am a resident of Newburyport and have worked in education, high tech and urban development. My interests in architecture and construction are invaluable to my clients. For more information please visit the Wellsco website.