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Why is the loan rate on my mortgage disclosers 5.625% but my annual percent rate is 5.861% Are they not the sa |
Why is the loan rate on my mortgage disclosers 5.625% but my annual percent rate is 5.861% Are they not the sa APR is a measure of "effective" interest rate, by taking your actual payment and measuring it against the money you actually get, bu basically subtracting off lender fees (except for third party fees, such as title, escrow, appraisal, and attorney, which are ignored for APR as the lender theoretically isn't responsible for them) APR is a very poor measurement, because it assumes you're going to keep the loan until you pay it off with the final payment. Fewer than 5% of all loans last longer than 5 years. In other words, for most loans, it assumes you spread the costs of the loan over the full term of the loan (most often thirty years), when a far shorter period of about 2-3 years would be more appropriate. A lot more detail about the limitations of APR here: http://www.danmelson.com/posts/114746733... On the other hand, APR does tell a pro that you're paying a blortload of costs here - and those are just the ones they're admitting to right now. It is probable that a higher interest rate with lower costs will serve you better. Source(s): Loan Officer and Realtor in San Diego. Website http://www.danmelson.com The APR takes into account all the points you paid, the costs of the loans, the fees, etc... So it is higher than the loan rate. The APR is higher because it includes all the closing cost that you have to pay to obtain the loan. And if your loan is not a fixed rate loan, the APR doesn't really make sense anyways. But whatever rate is on your "Note" (mortgage note), that will be your actual rate. The rate your payments will be based off of is 5.625%. They are not the same because the APR rate includes costs of your loan spread out over the term of your loan. A more detailed explanation of APR, http://www.choicefinance.net/faq/what-is... all above answers are correct plus you paying your mortgage monthly and that is your actual interest. the APR IS calculated yearly , plus your closing cost spreed over term of your loan. compound interest work different then simple 2+2. |
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