- Borrowers should understand the difference between APR versus interest rate before comparing mortgage loans.
- Both APRs and interest rates have different benefits and drawbacks that borrowers should be aware of.
- Future homeowners who learn to compare mortgages using both measurements have the potential to land the best possible deal.
The pros and cons of APR versus interest rate: those shopping around for mortgage loans across various lenders and products for the first time will soon discover the importance of this debate. By understanding how interest rates and annual percentage rates (APRs) work, as well as the associated benefits and drawbacks for each, future homeowners could potentially save thousands of dollars. If you find the difference between these two measurements confusing, do not worry, you are not alone.
Feel free to use the guide below, which is meant to help clarify the difference between the two, as well as provide a breakdown of the pros and cons of APR versus interest rate.
How To Determine The Pros and Cons of APR Versus Interest Rate
Interest rates and annual percentage rates are two different measures altogether, and should not be used interchangeably. An interest rate helps to calculate how much it costs to borrow the principal on a home loan, and is a great tool for estimating what a monthly mortgage payment might look like. On the other hand, an annual percentage rate (APR) helps borrowers get an idea of the overall cost of taking out a mortgage. For example, an interest rate most likely will not include various fees and charges, such as closing costs, brokerage fees or insurance premiums. By looking at the APR, future homeowners get a better picture of the total cost of taking out a mortgage.
At the end of the day, borrowers should not necessarily favor one measurement and discount the other. Although the annual percentage rate might help provide a more accurate look at the cost of a loan, homeowners who closely scrutinize both the APR and the interest rate in combination are most likely to land the best deal. By using the guide below, those shopping for mortgage loans will be sure to better understand the pros and cons of APR versus interest rate.