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Dorchester Center, MA 02124
So, you’re thinking about becoming a homeowner and trying to figure out every detail concerning the mortgage application. During this process, you’ve probably stumbled upon something called the APR and found yourself wondering – How much is annual interest on a mortgage?
An annual percentage interest (APR) varies from lender to lender according to the type of loan, your credit score, as well as the current market conditions. Knowing your APR can give you a more accurate picture of your payments since it is a measure that reflects the interest rate, mortgage points, broker fees, and any other charges you might have to pay.
You probably know that your annual income will be one of the key factors considered when you apply for a mortgage loan. But did you know that, besides the interest rate, there’s something called an annual percentage rate?
APR, or annual percentage rate, measures the cost of borrowing money, as it reflects the interest rate, mortgage broker fees, mortgage points, and any other charges you have to pay when getting a loan. You can regard it as a yearly interest generated by the total cost of funds for borrowing the money over the mortgage term.
Confusing math equations scare almost everyone, myself included, but when it comes to the APR, the formula looks much more confusing than it actually is. To put it simply, an APR is expressed as an interest rate that calculates what percentage of the principal a borrower will have to pay each year.
But, the APR depends not only on the principal amount but also takes into account fees and monthly payments. This yearly percentage rate is derived by multiplying the periodic interest rate by the number of periods during the year that it was in effect.
There are numerous factors that affect the rate you will be offered by your chosen mortgage broker, so here are some of the most important ones:
You might have also come across something called the annual percentage yield (APY), but this calculation is different because it takes into account the compound interest as well. Because of that, an APY is higher than an APR. Also, the higher the interest rate is, the smaller the compounding periods are, which means the difference between the APR and APY is greater.
While both are expressed as a percentage, the APR and interest rate have some key differences between them. Here’s a comparison of the most important aspects of each of them:
Your mortgage packager might be working diligently on finding you the best mortgage deal, but you should still do your research and follow the fluctuations of the average interest rates. Here are the most recent national averages for interest rates, as well as annual percentage rates, as of 12/28/2022:
Type of Loan | Interest Rate (%) | APR (%) |
30-year Fixed-Rate | 6.316% | 6.420% |
20-year Fixed-Rate | 6.005% | 6.138% |
15-year Fixed-Rate | 5.492% | 5.664% |
10-year Fixed-Rate | 5.708% | 6.059% |
5/1 Adjustable Rate | 5.853% | 6.534% |
30-year Fixed-Rate FHA | 6.125% | 6.859% |
30-year Fixed-Rate VA | 5.828% | 6.228% |
When you’re shopping for mortgages, there are a lot of things to consider, from finding the best mortgage lenders on Zillow to figuring out what kind of life insurance you should get for your mortgage. So, let’s clarify a few additional things you should know about the APR so it doesn’t give you any more trouble and confusion.
Your mortgage rate will depend on the type of loan you acquire. There are several available, and they usually differ depending on the length of the loan and whether the rate is fixed or adjustable. Here are the most common types of loans you can get:
An interest rate cap, also known as an annual cap, is the maximum rate increase that can occur on an annual basis if you opt for an adjustable-rate loan (ARM). For example, if the cap is 2%, the new rate can’t be more than that amount when compared to the previous rate, even if the market circumstances dictate for the rate to go higher than that.
When you’re comparing lenders and their mortgage rates, as well as checking out different pages such as the Angled Oak Mortgage website or the reviews for City Creek, an APR will be a good way to compare different lenders you’re considering. So, now that you know everything about it, it will be easier to find the right mortgage company for you. Good luck!