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apr OR Interest is better tell me the differents please.

by wafer244 from Houston, Texas. Nov 11th 2013 Reply


Joe Metzler (JoeMetzler)
#1 ranked lender in Minnesota - 3,817 contributions

Interest is the interest rate... APR also factors in costs... My humble opinion is to ignore APR. Many a person has taken the wrong loan by focusing on APR versus a total cost analysis... APR is VERY MISLEADING. For example any loan with mortgage insurance also factors that in... The truth is that APR is a very poor way to comparison shop for a mortgage and can cause borrowers to make costly decisions. APR was created to provide a way for borrowers to account for costs associated with the mortgage. This sounds good because it may not be very easy to choose between a loan with a lower rate and higher fees or a loan at a higher rate with low fees. The problem is that the APR calculation is based on bad assumptions. First, APR assumes zero inflation and that the value or buying power of a dollar today will be exactly equal to the value of a dollar 10, 20, or even 30 years from now. Next, the APR calculation assumes that the mortgage will never be pre-paid or paid. That means no refinancing or selling the home, which is highly unlikely since the average life of a home mortgage loan is less than four years. Just think about your own loans: Is it rare to see the same loan in place for even five years-forget 30 years? The APR calculation does not consider the value of the money used for fees. So if you spent thousands of dollars in points or fees to get a lower rate, the APR calculation does not give any value to the money if it wasn't spent on closing costs. Finally, APR does not take tax consequences into consideration. This can be significant, since higher fees on the mortgage may not be deductible, while the higher interest rate typically is deductible. Moreover, APR can be easily manipulated by bad lenders, making it totally worthless. In MN or WI, get the loans with the expertise you desire at www.JoeMetzler.com

Nov 11th 2013
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Eric Blossman NMLS 211144 (eblossman)
#117 ranked lender in Texas - 63 contributions

You need to look at both the interest rate and the APR. The interest rate is the actual rate to which you are going to pay back your mortgage while the APR is an annualized calculation of the cost of the mortgage. A much higher APR is a sign that you may be paying too much for your mortgage. With this being said, there are a lot of variables that a skilled loan officer can help you navigate. If you are in the market to buy or refinance, I would suggest shopping around until you find a professional you can trust.

Nov 11th 2013
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Charlie Sparks (CharlieSparks)
#9 ranked lender in New Mexico - 397 contributions

I gave Mr. Metzler's explanation a 'thumbs up'. If I may expand on one of his points, APR can be very misleading, especially now that lenders must disclose virtually every conceivable fee you COULD be charged in a transaction even though we know some of them will not be charged. This almost always skews the APR higher than it should be.

Nov 11th 2013
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Dave Metsker (DaveMetsker)
#37 ranked lender in Oregon - 2,317 contributions

The interest or note rate, is what your monthly payments are based on. The APR, or annual percentage rate, is a calculation of the interest charge included in your closing costs, and the effect of the interest payments, assuming you paid the loan on time until maturity, usually 360 payments, or 30 years. It will always be higher than the note rate.

Nov 11th 2013
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Peter Botros (PeterBotros)
#70 ranked lender in New York - 895 contributions

As much as I would like to rant about this topic, Joe Metzler said ewverything I want to say!!

Nov 11th 2013
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William J Acres (William_Acres)
#1 ranked lender in Arizona - 8,486 contributions

Joe's answer is very good.. the only thing I would add is that the rules for disclosing APR's vary greatly depending on who you use to do your financing.. for example if you go to Wells Fargo or BofA, then the laws are different... they ( the big banks) are not obligated to show you exactly how much money is changing hands within the transaction.. However if you use a mortgage broker, then every penny that is charged is disclosed.. You could have the exact same deal from the big bank vs. the broker, and because of the laws, the APR would be higher on the brokered deal. You could even have a vastly better deal from the broker vs. the bank and the banks APR could still be lower just because of these laws.. APR should not even be considered when shopping for a mortgage.. what you should look at is the note rate and "Money in, Money Out".. this is exactly what an accountant would use to determine the difference between two deals, and you should too.. .. I'm a Broker here in Scottsdale AZ and I only lend in Arizona. If you or someone you know is looking for financing options, feel free to contact me or pass along my information. 480-287-5714 WilliamAcres.com

Nov 12th 2013
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