What is APR?
February 8, 2021
What is APR and How Does It Apply to Mortgage Offers?
“APR” is an abbreviation of Annual Percentage Rate, a term that is used in relation to credit. Mortgages, home equity loans, and credit cards, are examples of credit.
With respect to mortgages, APR is the cost of credit expressed as a yearly rate. The APR reflects the mortgage interest rate plus the other costs of the loan. These costs can include the interest rate, points, mortgage insurance, and loan origination fees. APR is usually higher than the mortgage interest rate because it reflects these additional costs.
APR may be used to compare mortgage offers between lenders. It may be helpful when you are planning to keep the loan long term (at least 6 years), because a mortgage with a lower APR costs less over the life of the loan. If you intend to keep the mortgage for a short period of time (5 years or less), comparing APR may be less useful.
Lenders should always provide a document called a Loan Estimate when you apply for a mortgage. The “Comparisons” section of the Loan Estimate can help you determine which loan is the best fit for your personal circumstances. Not only does this section list the APR, but it also explains how much the loan will cost in the first 5 years. If you apply to multiple lenders, you can use the “Comparisons” section of Loan Estimates to compare the offers between lenders.
A residential loan officer can also help you understand your options when you are purchasing a new home or refinancing an existing loan. RSI Bank’s loan officers are happy to help you make an informed decision. Learn more about our mortgage programs, meet the team, or ask us a question. We’re here to help.
The information provided in this article is meant for educational purposes only and is not advice.
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