What Is APR on a House Loan?
Annual percentage rate (APR) on a house loan is the cost of your credit expressed as a yearly rate. Calculate APR by adding your base rate to any bank and broker fees.
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Types
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The APR on a house loan may be fixed or variable. If you are shopping for a home loan and find an exceptionally low rate, be careful if it is variable. If the interest rate rises, you may be unable to afford your mortgage payment. A fixed interest rate means that your monthly payment will stay the same throughout the term of the loan.
Considerations
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APR on a house loan can vary based on the loan length, down payment and the amount financed relative to the value of the collateral.
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Function
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The APR calculates the cost of credit on an annual basis. Your monthly mortgage statements may also show a daily periodic rate, which is the amount of interest charged per day based on your account balance.
Misconceptions
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The APR charged on house loans is determined by individual lenders and not the Federal Reserve. The rates established by the Federal Reserve are used for lender-to-lender transactions.
Expert Insight
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Getting the best APR on a house loan can take some research. Be sure to review your credit report and use a website like Bankrate.com to research what rates to expect.
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