What is the Difference Between the APR & the Mortgage Rate?
When advertising mortgage rates, lenders often list two rates: the annual percentage rate, or APR, and the mortgage interest rate.
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Interest Rate
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The interest rate is the number that will be used to calculate how much interest accrues on your mortgage.
APR
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The APR calculates the true cost of the loan by taking into consideration the closing costs, points and any other finance charges involved in taking out the mortgage.
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Identification
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The Truth in Lending Act mandates that lenders adverse the APR in addition to the mortgage rate to prevent lenders from offering low interest rates, yet charge excessive closing costs.
Time Frame
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The APR assumes that you will keep the loan for the stated term. However, since most people refinance or otherwise pay off the loan early, the effective APR will be higher because the costs are spread out over a shorter period.
Considerations
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Closing costs must usually be paid at the time of closing. However, some lenders may allow you to roll these costs into the mortgage.
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