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Debbie Siegel's Mortgage Minute
What's APR and Why Does It Matter?
"I'm looking for the lowest rate."
I hear that several times a day. After being bombarded by the large
mortgage companies' parade of television and radio ads, investors
become fixated on interest rates and intent on making the lowest
monthly payment possible.
And I don't blame them.
But rather than pay attention to the rate and only the rate, it's
important to understand the Annual Percentage Rate (APR). You've seen
the term on your credit card statements but may not realize how it
affects your mortgage program.
* Next 37 17 investors only!
On your credit card account, your APR determines your finance charges
if you don't pay off your flat-screen TV or other purchases on time.
But when you're creating a mortgage program, the APR is calculated in a
different way.
APR measures all the costs associated with a mortgage across the life
of the loan, and includes points, processing fees and prepaid interest
- all expressed as an annual percentage rate.
It's not the same as the loan's interest rate, and in fact many low
rate "deals" often have high fees associated with them. The APR pulls
together all the costs, and in doing so, allows you to compare apples
to apples when looking at competing offers.
Understanding the APR can be complicated, but it helps you grasp the
total cost of the loan. Don't just focus on the rate! If there is a
considerable difference between the interest rate being quoted and the
APR, be skeptical and ask questions. There may be a better deal out
there for you.
Remember it's not just about the rate.
Got questions about real estate financing? Contact
Debbie@westchester-mortgage.com
or 617-965-1236. She'll consider them for
inclusion in a future column. Debbie Siegel is president of Westchester
Mortgage in Newton, Mass. She is licensed in several Northeastern states.
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