The Difference Between Interest Rate And APR For Franklin TN Home Loans
When looking for financing, you may see information on APR and interest rates. These are usually misinterpreted as being the same, but they are actually not. It is helpful for home buyers to analyze both. The following are details on the difference between interest rate and APR for Franklin TN home loans.
How Interest Rates Differ from APR
Interest rates determine monthly loan payments for the duration of a loan. This is usually the rate given by mortgage companies. It does not include the initial cost of a loan. Fees can vary between loan programs and lenders. For example, there can be pre-paid interest for one mortgage but not another. Other costs that might be included are mortgage origination and services fees. The APR combines the interest rate plus certain fees, so it is a better reflection of overall expense.
Why APR Is Important
When assessing different loan programs from the same or different lenders, the APR is a standard that can be used. You might be offered a lower interest rate with greater fees and a higher rate with low fees. The real cost includes both the up-front expenses plus what you pay in interest over the term of the loan. The APR can therefore assist 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 |
How APR Figures Are Compiled
There are a few things that consumers should understand when it comes to APR figures. APR is compiled based on the length of a loan. If you pay off your loan sooner, the actual APR may be much different. Additionally, one mortgage that seems to have a lower APR than another might end up looking less desirable if the time period is adjusted. The best APR is not always the best option. Since most borrowers do not keep their mortgage for its full 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 |
Additionally, certain APR calculations are not exact. For example, the rate on a variable rate mortgage will alter but that change is not predictable. The APR on these mortgages are based on the beginning rate.
More About The Difference Between Interest Rate And APR For Franklin TN Home Loans
To make an accurate comparison of your options, it is essential to obtain quotes close together in time (on same day if feasible) as interest rates constantly change. Also keep in mind that rates are subject to change unless you lock in. Always review the interest rate and APR jointly to better assess cost. A knowledgeable loan officer can provide other guidance on the difference between interest rate and APR for Franklin TN home loans.
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