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Interest Rate vs. APR

Interest Rate vs. APR

January 9th, 2019 | Interest Rates

Interest rate and annual percentage rate (APR)-those are the same thing, right? Unfortunately, too many mortgage buyers don’t realize the answer is no. The interest rate on your mortgage loan is different from the APR and understanding both is important to getting the best deal on your mortgage.

Interest Rate

The interest rate on a loan is the cost for borrowing the mortgage principal. It is a percentage of the amount and can be either fixed or variable. The interest rate is amortized over the life of the loan and the interest payment is rolled into the monthly mortgage payment.

APR

The annual percentage rate is a measurement of total costs to the borrower. The APR includes not only the interest rate but also the upfront costs like points, broker fees, closing costs, etc. All of these fees are factored in and expressed as a percentage.

Why It Matters

The interest rate and the APR provide the borrower with ways to compare other loans and to figure out which loan is the best value. By looking at the interest rate, borrowers can see how much their monthly payments will be. When choosing between several mortgage offers, they can compare both the interest rate and the APR to understand the true cost of each one. For example, one loan may have a lower interest rate but more discount points may be required. The APR on that loan may actually be higher than one with a higher interest rate. Comparing loans based on APR can help borrowers understand what they will pay once all fees and points are accounted for. (It is important for borrowers not to compare the interest rate from one loan with the APR from the other. Otherwise it will not be a fair apples-to-apples comparison.)

APR and interest rate are also important tools for deciding which loan is best based on a borrower’s housing time frame. The longer a borrower plans to stay in his house, the more it makes sense to choose the mortgage with the lowest APR. That’s because the APR is calculated by spreading the fees over the life of the loan. If a borrower moves before the loan term is up, the APR could actually be much higher. If borrowers only plan to be in their home for a few years, they may find it more cost effective to take a higher interest rate with fewer upfront fees. It wouldn’t make sense to pay several points to bring down the interest rate only to move within a few years. The initial cost would be more than the monthly interest savings; in some cases a higher APR may be more desirable.

Both interest rates and APRs are useful for comparing mortgage costs but they are different. Call Cornerstone Equity Group, Inc. today at 702-780-1500, we can help you to figure out which interest rate and APR make the most sense for you. 

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Cornerstone Mortgage

MAIN OFFICE:
5940 S. Rainbow Blvd., Suite 201
Las Vegas, NV 89118
(702) 840-1500
NMLS ID 340311
NV: DML License: 4814
CA: DOC License: 60DBO86761
CA: DRE License: 01848420

NEVADA:
5940 S. Rainbow Blvd., Suite 201
Las Vegas, NV 89118
(702) 840-1500
NMLS ID 340311
NV: DML License: 4814
CA: DOC License: 60DBO86761
CA: DRE License 01848420

CALIFORNIA:
1500 Standiford Ave., Suite A1
Modesto, CA 95350
(209) 578-9000
NMLS ID: 1741490
CalDRE License: 01848420

200 Tampa St.
Turlock, CA 95382
(209) 633-3222
NMLS ID: 1739798
CalDRE License: 01848420

HAWAII:
91-110 Hanua St., Suite 201
Kapolei, HI 96707
(808) 784-1239
NMLS ID: 1669660
HI: MLOC Liense HI-340311

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Cornerstone Equity Group, Inc., dba Cornerstone Mortgage is an equal opportunity lender.

Nationwide Multistate Licensing System (NMLS) ID: 340311. Additional NMLS branch licenses: 1739798, 1741490, 1669660.

Cornerstone Equity Group, Inc., dba Cornerstone Mortgage is licensed by the Nevada Division of Mortgage Lending, license number 4814.

Cornerstone Equity Group, Inc., dba Cornerstone Mortgage is licensed by the California Department of Corporations under the Residential Mortgage Lending Act and Finance Lenders Law. CA Finance Lender #60DBO86761.

Cornerstone Equity Group, Inc., dba Cornerstone Mortgage is licensed by the California Department of Real Estate, License number 01848420.

Cornerstone Equity Group, Inc., dba Cornerstone Mortgage is licensed as a Mortgage Loan Originator Company by the Hawaii Department of Commerce and Consumer Affairs, license number HI-340311.

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