NJ Mortgage Consultants Explain the Difference Between Mortgage Rates and Annual Percentage Rates (APR)
The term ‘rates’ is thrown around a great deal when dealing with mortgages. Both mortgage rates and annual percentage rates (APR) affect your mortgage in different ways. NJ mortgage consultants explain the difference between the two for people going through the process of getting a home mortgage.
What are Mortgage Rates?
First, NJ mortgage consultants explains the definition of the mortgage rate. The mortgage rate is the interest rate and it is a percentage of the loan amount. It is the charge that is incurred for borrowing money. Whatever your monthly payment is, it is calculated at whatever the interest rate is, no matter what the annual percentage rate is. The interest rate is determined based on your credit score and your payment history. Because of the impact that the interest rate has on your monthly payment, it is important that you have a high credit score and that you pay all of your bills on time each month.
What is the Annual Percentage Rate?
According to NJ mortgage consultants, the true cost of the loan is calculated in the annual percentage rate. It takes into account the total closing costs, points, processing fees, underwriting fees, loan origination fees, and any extra finance charges, but does not include third-party fees, such as title insurance or the coast of an appraisal. The annual percentage rate does not affect your monthly payment. It is an indicator of the amount of loan fees a lender charges. A higher annual percentage rate means higher loan fees and different lenders charge different amounts.
NJ Mortgage Consultants Explain Why Lenders Give Both the Mortgage Rate and the Annual Percentage Rate
Mortgage lenders are actually required by law to disclose mortgage rates along with the annual percentage rate. This deters them from offering a low interest rate and then charging excessive closing costs. The Truth in Lending Act (TILA) was passed into law in 1968 and it allows consumers to make informed decisions as well as promote competition among lenders. People are able to decide what is considered a good mortgage deal if they know the interest rate as well as the annual percentage rate.
Other Important Information About Interest Rates and Annual Percentage Rates
It may not be as simple to compare the rates when you are searching for a mortgage. Banks and lenders calculate the annual percentage rate differently so a side-by-side comparison will not be entirely accurate. By law, lenders must include points, administrative fees, certain title fees, attorney fees, mortgage insurance premiums, and prepaid interest in their calculations. Other types of fees such as application fees and tax related service fees do not have to be included in the calculations for the annual percentage rate, but they can be. As a borrower, you should carefully examine all mortgage offers you receive in order to make the best decision based on your financial situation.