What is A.P.R.?
What is the difference between the interest rate and the A.P.R.?
You’ll see an interest rate and/or an Annual Percentage Rate (A.P.R.) for mortgages or credit cards advertised. Federal law requires lenders to disclose both.
The A.P.R. is a tool for comparing different rates with different lenders. The A.P.R. is designed to represent the “true cost” of interest to the borrower in the form of a yearly rate.
While it’s designed to make comparisons easier, it’s sometimes confusing with mortgage loans. A.P.R. associated with mortgage include other expenses of the loan. Certain fees and insurance premiums get converted into the A.P.R., but are not represented in the basic interest rate on the mortgage. The lack of federal definitions for what goes into the calculation, the calculation of the A.P.R. can vary greatly from lender to lender.
So, A.P.R.s are not always a clear indicator for comparison shopping. In order to be assured of comparable mortgage options and getting the best loan for your financing needs, you need a mortgage professional to help you.
Also note that often advertised terms and rates do not include information on loan terms such as balloon payments or prepayment penalties, or how long your rate is locked. A.P.R.s will be higher on 10 or 15 year mortgages, even if the interest rate is lower than that of a 30 year mortgage, because it’s amortized over a shorter period of years.