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APR, interest rates differ for mortgages

By Joyce Koballa jkoballa@heraldstandard.Com 3 min read
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Whether you’re a first time home buyer or thinking about re-financing your current mortgage, it’s important to know the difference between the interest rate and annual percentage rate (APR) when applying for a loan.

Andrew Corfont, vice president and marketing director at Community Bank based in Carmichaels, said consumers generally tend to look at just the interest rate when applying for a mortgage loan, which is the percentage that a consumer will pay each year to borrow the money.

“We find this common for people coming in (to apply),” said Corfont.

The APR (annual percentage rate), however, is also an important factor because it is an effective rate that not only includes the interest rate, but also lender fees required to finance the loan such as points, appraisals, title work and other up front costs.

“The APR varies based on the final loan amount and finance charges, but rates are still good” said Corfont.

The Federal Truth in Lending law requires that all financial institutions disclose the APR when they advertise a rate.

Although the APR comes in slightly higher, zillow.com states the interest rate is very important when comparing loan quotes since it directly affects monthly payments.

Joe Klocek, assistant vice president of Somerset Bank in Connellsville, said customers are provided with both the interest rate and APR within three business days of applying for a mortgage loan.

“Some banks have fewer fees and some banks have more fees and the APR increases with those fees, so it’s the true gauge of comparison shopping,” said Klocek.

According to Klocek, most people do their homework on interest rates and APR’s when shopping for a mortgage with the actual rate disclosed by the bank’s computerized program.

Corfont said Community Bank’s website offers a mortgage calculator that determines the payment based on the loan term, APR, and interest rate along with approximate closing costs and other associated fees.

For example, Corfont said for a 30 year-fixed mortgage of $100,000 with an interest rate of 3.75 percent and APR of 3.829 percent, the monthly payment would be $463.

“When looking at the difference between a 15 and 30 year-fixed loan now you’re not seeing a huge difference between rates and when you look at the actual payment there’s not a big difference if you can pay it off sooner,” said Corfont.

Klocek said although the rates are expected to go up because of positive signs in the economy, he doesn’t anticipate a dramatic change.

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