When reviewing options for home loans, you may see information on interest rate and APR. These are commonly mistaken as being synonymous, but they are very not. It is important for home buyers to understand both. The following are details on MA home loan APR and what it means.

Defining Interest Rate and APR

Interest rates affect monthly loan payments for the duration of a mortgage. This is almost always the figure given by mortgage companies. It does not take into account the initial cost of a mortgage. Fees will differ among loan programs and mortgage companies. For example, there can be points for one program but not another. Other charges that might be included are origination and services fees. The APR combines the interest rate and certain closing costs, so it balances out the expenses.

How to Use APR Information

When assessing a range of financing programs from the same or different lenders, the APR is an amount that may be used. You may be presented with one option with high fees and another with low fees and a separate interest rate corresponding to each. The final cost includes both the up-front fees and what you are responsible for over time. The APR may thus aid with the evaluation.

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

APR Disclaimer

There are a couple of things that home buyers should keep in mind when it comes to APR figures. APR is calculated over the length of a mortgage. If you were to pay off your mortgage sooner, the realized APR will be higher. Also, one mortgage that appears to offer a lower APR than another may end up being higher if the number of years is changed. The best APR is not automatically the better option. Since most home owners do not retain the same mortgage for its entire term, this can be important.

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, certain APR calculations are not exact. For example, the interest rate on an adjustable rate loan will alter but that change cannot be forecasted. Thus, the APR for these loans are calculated using the assumption that the amount will remain the same,..when in actuality, they will.

More About MA Home Loan APR And What It Means

To complete an accurate comparison of loan alternatives, it is important to ask for quotes within a short time frame (on same day if feasible) as rates are constantly changing. Also know that they are subject to change until you lock in. Always review the interest rate and APR together to better assess cost. A knowledgeable mortgage professional can furnish further advice on MA home loan APR and what it means.