Tuesday, January 24, 2017

The Difference Between Interest Rate and APR

When financing a home at the Lake of the Ozarks, it's important that you look at more than just the interest rate. There are other factors to consider when looking for the best value in a loan. In today's blog, your Lake of the Ozarks mortgage lender discusses the difference between interest rate and annual percentage rate (APR).

Interest Rate


Your mortgage interest rate is the cost of borrowing the principle loan amount. The rate can be variable or fixed, but it is always expressed as a percentage. This number does not include any of the extra fees associated with a home purchase.

Annual Percentage Rate (APR)


Annual Percentage Rate, or APR, is a broader measure of the cost of borrowing money. Not only does the APR reflect the interest rate, but it also includes mortgage points, mortgage broker fees and other loan fees. Due to these additional factors, your APR is typically higher than your interest rate.

The Difference


The main difference between interest rate and APR is that the interest rate reflects what your actual monthly payment will be. The APR reflects the total cost of the loan over the life of the loan. A consumer can use one or both when comparison shopping for a home loan at the Lake of the Ozarks. If a home buyer is solely focused on the lowest monthly payment possible, then the interest rate should be the focus. However, if the borrower is focused on the total cost of the loan over time, then the APR should be used as the comparison tool. Consider the amount of time you plan to spend in your home to determine which measure to use. If you plan to stay in your house for the 30 years or close to it, then it would make sense to go with a loan with the lowest APR. However, if you only plan to be in your home for a few years, it might be smart to go with lower upfront fees and a higher APR because the costs will be less over the first few years. Do the math and figure out what your break-even point would be.

Making the calculations and determining what's right for your situation can be challenging. That's why it's so important that you find the right mortgage lender at the Lake of the Ozarks. Call 573-746-7211 to start the mortgage process today. I'll explain your different options and help you understand how they meet your individual needs. Before you know it, we'll have you in the home of your dreams!  

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Michael Lasson
Senior Loan Officer
NMLS #: 493712

4655 B Osage Beach Parkway
Osage Beach, MO 65065

Direct:  (573) 746-7211

Email:  mlasson@fsbfinancial.com

**The postings on this site are my own and do not necessarily represent First State Bank of St Charles’s positions, strategies, or opinions.




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