Understanding APR and Its Imprtance
2 minute read
July 21, 2014


Understanding APRAPR- What exactly does it mean? How is it calculated? Many homeowners ask themselves these questions. Understanding APR will allow you to determine whether or not you are receiving the best pricing on your mortgage and make a sound financial investment in your home.

APR- Defined

APR stands for annual percentage rate. It is the cost of credit extended, expressed by an annual percentage. It represents that annual yearly cost of funds over the term of the loan and it calculated including any fees or additional costs associated with the loan transaction.

While understanding APR, know that your APR and your interest rate are most likely not the same. The interest rate is one of the costs calculated into the mortgage, but there are usually additional fees associated with a home loan. The only time that the APR and interest rate are the same is when the mortgage interest rate is fixed over the life of the loan and there are no  loan fees.

Why APR Matters

Understanding APR is important to every homeowner so that they can determine if they are getting a fair deal. Mortgage lenders advertise their low interest rates, but the lowest interest rate is not always the best deal. If the same loan product at a slightly higher interest rate has significantly lower fees that APR would be lower and ultimately cost the homeowner less.

The next time you are searching for a home loan, speak with your mortgage professional and be sure to understand what costs are associated with your loan. Refer to your Truth in Lending document to see what your APR is, and be sure that you are truly getting the best rate.

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