What is the Difference between Interest Rate and APR?

When purchasing a home, there are many new terms to learn. PMI, escrow, earnest money, and the list goes on and on. Two particular terms that can trip people up are interest rate and annual percentage rate, or APR. Why are there two different rates? Why is one higher than the other? When looking at various mortgage options, it’s best to know what these key terms represent. Read on to learn more from the team at GVC Mortgage.

What Is an Interest Rate?

An interest rate refers to the annual cost of a loan given to a borrower and is expressed as a percentage. Interest rates will fluctuate based on the current housing market and will also be determined by your credit history and score.

What Is an APR?

The APR includes the interest rate plus any other costs and fees associated with securing a mortgage. This is why the APR is higher than the interest rate, and generally why interest rates are advertised to consumers, not the APR.

Why the Difference between Interest Rate and APR?

The APR is meant to provide you with more details about what you’re actually paying. Every consumer loan agreement must include the APR disclosure, as per the Federal Truth in Lending Act. Borrowers can use the APR as a suitable starting point for evaluating various loan expenses because all lenders are required to adhere to the same regulations in order to assure the accuracy of the APR.

Does the process of buying a home have you confused? Ready to explore a refinance? GVC Mortgage has the professionals and the resources to help you make the best, most responsible decision when it comes to your home. We have been serving Indianapolis, Carmel, Plainfield, Fishers, Westfield, and the rest of Indiana since 1996. Contact us today at (317) 564-4906 to discuss your options.