When considering home loans, you typically encoutner the terms interest rate and APR. These are often misinterpreted as being synonymous, but they are actually calculated differently. It is important for borrowers to compare both. Below are details on NH home loan interest rate vs. APR.
Interest Rate vs. APR
Interest rates affect monthly mortgage payments for the term of a mortgage. This is usually the rate advertised by mortgage companies. It does not take into account the initial cost of a mortgage. Fees can vary between programs and mortgage companies. For example, there may be pre-paid interest for one loan but not another. Other fees that might be included are loan origination and services fees.. The APR takes into account the interest rate plus particular fees, so it balances out the figures.
How APR Is Used
When weighing different loan programs from the same or different lenders, the APR is a figure that can be used. You can be presented with a low interest rate with high closing costs and a higher rate with less closing costs. The final cost includes both what you pay up-front plus what you pay over time. The APR may therefore help you better compare options.
| 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 |
How APR Figures Are Compiled
There are a couple of things that home buyers should know when it comes to how APR is determined. APR is formulated based on the term of a mortgage. If you were to pay off your loan in a shorter time period, the realized APR may be a greater percentage. Furthermore, one mortgage that seems to have a better APR than another could end up having a higher APR if the number of years were changed. The best APR is not always the best option. Because most borrowers do not retain their mortgage for its entire term, this is an important fact 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 |
Additionally, certain APR estimates are not definite. For instance, the interest rate on a variable rate mortgage is likely to alter but the amount cannot be predicted. The APR on these mortgages are based on the beginning rate.
More Information on NH Home Loan Interest Rate Vs. APR
To make a valid comparison of your APRs, it is essential to obtain quotes within a short time frame (on same day if feasible) as interest rates constantly change. Also keep in mind that your final rate is not determined until you lock in. Always look at the interest rate and APR jointly to better understand the program and the costs related to them. An experienced loan officer can provide additional advice on NH home loan interest rate vs. APR.