What is the difference between Mortgage Rate and Mortgage APR?

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Thank you in advance.

Here is the link.

  1. Reply
    April 30, 2011 at 12:25 am

    APR is a standard way of representing a cash flow resulting from a mortgage transaction.

    To explain this, consider a simple 30 year loan with rate of 5% (this is not APR, do not confuse the two). You can buydown the rate by paying points. You can change the compounding interval for the same 5% rate (compounding daily instead on monthly would result in higher interest costs). You can change the lenght of the loan, number of payments, introduce a teaser rate for the first year, a large closing fee at the end of the mortgage, etc.

    The thing is, after just a few of these manipulations, you can end up with a loan that is essentially the same, but does not have a single number that is the same as the original deal. Because of complexity of the effects of changes in various terms, it’s very hard to compare various offers.

    This is why APR was invented. The idea is that the entire cashflow with whatever terms offered is converted on paper into an equivalent 1-year transaction with its share of origination fees and other gotchas. This allows a direct apple-to-apple comparison between various deals.

  2. Reply
    April 30, 2011 at 12:43 am

    Hmm good question 🙂
    check out http://www.financeandrates.com may be u can find the answer 🙂

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