Home Loans
Is My Annual Percentage Rate What Determines My Payment?
(presented by www.refinance-refinance.net - mortgage lenders)
By Ben Afzal
Basics
The annual percentage rate is something that is quoted to you along side your interest rate.
The annual percentage rate is meant to give you a “true measure” of your loan’s cost.
Different lenders can quote you the same interest rate but the loan can cost you different amounts over time.
For example:
- you are looking for a $500,000 loan
- Lender A offers an interest rate of 6%
- Lender A offers closing costs of $10,000
- Lender B offers an interest rate of 6%
- Lender B offers closing costs of $3,000
As you can see from this example although both lenders are offering the same interest rate one lender is cheaper. Lender B will charge less closing costs. Closing costs are the charges you need to pay when getting your mortgage loan.
The annual percentage rate adjusts your interest rate to factor in these closing costs.
In this example Lender A would have a higher annual percentage rate than Lender B. In this way you would be able to tell that Lender B was offering you a better deal even though both interest rates offered were identical.
This is usually your interest rate.
In this example the monthly payment will be the same between Lender A and Lender B. Lender B is still cheaper because they charge less up front.
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