applying for a mortgage,

When applying for a mortgage, two figures reflect the total mortgage cost. These two numbers are; annual percentage rate APR and interest rate. Though both describe the much, you will pay for the property, and they are not the same

Interest Rate: this is the total amount of service fee charged on your principal loan balance, usually

calculated on an annual basis.

APR: these charges include

more new numbers in addition to standard interest rates. These additional

charges include mortgage processing fees such as mortgage insurance, discount

points, and original loan fees.

Loan Interest Rates: ( How it works).

The rate of interest is a service that applies to the number of

loans offered to you over a given period. For instance, if you had borrowed

$100, and the interest rate is 5%, this means that you are going to be paying

$5 every month as an interest rate on the total amount you had borrowed.

Consider low rates: all other factors remaining constant,

lower interest rates are the best. This is because the interest rates affect

your monthly income. Remember paying interest are the cost that after paying,

they can never be plowed back. The interest rate increases the overall cost of the property you are buying.

Monthly rates: choosing the mode of interest payment

depends on the lender’s choice of payment. Some might choose to pay it

frequently on a monthly basis, and if you were supposed to pay 5% annually,

then you will pay 1/12 of the 5% (your principle rate)

APR Principles.

Like an annual rate, APR is an amount that lenders quote

on an annual basis. APR includes the interest rates you pay for the debt, plus

other additions related to funding your debt. Consequently, the APR total

amount represents all inclusive costs of borrowing. This enables you to compare

different lenders charging different fees.

The APR closing cost may include the following;

– loan application fee.

-original fee.

-discount fee.

-private mortgage insurance.

-other financing fees.

A simplified starting point: APR is a combination

of all estimated costs of borrowing. This includes the sum of all the involved

costs plus interest.

Lower rates must apply: the lower the APR rates, the

better, but you must consider the following rules.

Loan comparison: APR helps you to

make choices from lender to lender. You can find a lender with fewer interest

rates, but a huge closing costs upfront, while some might charge high-interest

rates with no closing cost. This will help you choose the better APR loan for

your property.

Lenders must provide an APR for most home loans. They

are required to provide loan detailed information concerning closing costs and

interests in the loan estimate documentation.

Some fees excluded. An APR includes a

number of charges, but other lenders exclude some charges such as credit report

fee.

Loan Application decision (using Interest and APR.)

When applying for a loan, or an APR, the interest charges

differ with a slight difference, but not in all cases.

Same APR and interest: when you apply for a loan and find

that you are not charged anything other than interest, then your APR is the

same as the interest rate.

Different APR, same rate: after analyzing loans from

different lenders and finding that the interest rates are the same, but the

closing cost end up being different, then the loans have different APR, and

from here you will be able to tell the loans with the highest rates by looking

at the highest APR.

Here is an example that can be used to illustrate the

difference and similarities of APR with interest. For example, George wants to

borrow $300000 for a fixed loan. You

will receive two options, as shown below.

Loan E Loan E

Interest 3.00% 3.125%

Fee required $2,545 $600.00

Points 2[$3,000.00] 0.00

APR 3.22% 3.14%

Points are optional fees charged on loan balance, and it

is used to lower the ongoing interest rates, and it constitutes 1 % of your

loan balance. For loan, A $ 3000 is required as points, in addition to $2545

fee, to give a total of $8545. This appears to be steeper than loan B, which

requires only a high-interest rate but no such additional charges.

From here, you are able to choose a better plan. For

me, I will choose plan B since it appears to be a better option, even with the

the fact that it comes with high-interest rates.

Check on APR charges.

From the illustration above, the loans with the lowest

ARP is always the best option. Looking at the closing cost and the type of loan

alongside the way you pay off, a lower APR will be a better option for you.

Aggressive debt payoff: when you are planning to pay off your debts

as fast as possible, and you can try minimizing the upfront fee since you are

not going to stay with the loan for a very long time, and so you will be able

to enjoy the low-interest rates that come with those fees. According to the

above illustration, loan A has a lower interest rate but comes with a higher

upfront fee of $8545. Choosing B will be safe since it comes with no upfront

fee, and so you can save the $8545 fee for your debt reduction instead. What you would need to do is find a working solution

by making a proper comparison between these two plans.

Selling or refinancing: in case you experience

difficulty to repay your loan overall

cost, you can consider selling or refinancing the property for a quicker

payoff. You can sit back and estimate the time it will take to clear up with

your interest, and also, calculate the loan upfront, then compare with an

the option of refinancing or selling off the property.

(ARMs):

the Adjustable Rate Mortgages loans can be unreliable. The initial APR rate that you saw in the documentation from the lender can change anytime, and you will find that ARM has changed, and as a result, it changes the APR. However, you need to understand that when comparing the standard rates, you are required to know how quickly these rates change with loans.

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