When you’re buying a home for sale in Orlando, whether it’s at Alaqua Country Club, Bay Hill Club or Heathrow and Legacy Clubs (or anywhere else, for that matter), you’re probably going to take out a mortgage loan – most people do.
But you’ll see terms like interest rate and APR, and they can get pretty confusing. This article breaks down the differences between your regular interest rate and APR, as well as explains why you need to know about both.
Interest Rate vs. APR: What You Need to Know
This guide will show you the difference between your APR and your interest rate – and why one is higher than the other is.
What is an Interest Rate?
Your interest rate is the percentage you’ll pay each day on the money you borrowed. It benefits the lender – it’s what they get for loaning you the money to buy a home. It’s expressed as a percentage, not a dollar figure, and it doesn’t reflect anything but what you’re paying the lender for borrowing money.
A lot of factors go into your interest rate. On the open market, interest rates go up and down every day (kind-of like oil prices). The day that you lock in your mortgage interest rate is the only day you need to worry about, though – it doesn’t matter where interest rates go the next day or the next week (provided you don’t have an adjustable-rate mortgage).
The factors that go into what interest rate you qualify include:
- Your credit score. The higher your credit score is, the better interest rate you’ll probably qualify for.
- Your down payment amount. When you put more money down, lenders are assuming less risk by letting you borrow money – and they reward you with a lower interest rate, in many cases.
- The loan type you’re getting. Your interest rate will depend on the type of loan you’re using.
- Your loan term. The term of your loan – how long it lasts – will have an effect on your interest rate.
- Whether you’re getting a fixed-rate or adjustable-rate mortgage. With a fixed-rate mortgage, your interest rate doesn’t change over the life of the loan. But with an adjustable-rate mortgage, your interest rate will stay the same for a few years (usually 3, 5, 7 or 10, depending on what you choose when you sign up for it) and then fluctuate annually with the market. It could go up or down, raising or lowering your monthly mortgage payments.
What is an APR?
APR stands for annual percentage rate. It’s a broad measure of the cost of borrowing, and like a regular interest rate, it’s expressed as a percentage. It determines the total amount you’ll pay each year over the entire loan.
Your APR includes the interest rate on your mortgage, discount points you paid to lower your interest rate, loan origination fees and other costs of borrowing money from a lender, so it appears higher than your regular interest rate does. The higher your APR is, usually, the higher your mortgage payments are for the entire time you have your loan.
Are You Buying a Home for Sale in Orlando?
If you’re thinking about buying a home for sale in Orlando or any of the surrounding communities, we’re here to help. Call us at 407-529-4621 right now to tell us what you’re looking for!
While you’re here, check out our:
- Apopka homes for sale
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- College Park homes for sale
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