|
What are rates, terms, and APR?
All mortgages have an interest rate, a term, which is disclosed as an Annual Percentage Rate (APR). For example, a mortgage might be defined as a 30-Year Fixed Rate Loan at 7.625%, with an APR of 7.800%.
In this example, the mortgage term is 30 years. As the borrower, you will pay back the loan in installments over the course of 30 years.
The interest rate in this example is 7.625%. This means you must pay interest on the money you've borrowed at a rate of 7.625% per year. That is, in addition to paying back the loan, you will pay your lender an additional 7.625% of the current loan balance every year. This interest is basically the fee your lender charges you in return for lending you the money.
The Annual Percentage Rate (APR) is a measure of the cost of credit, expressed as a yearly rate. Because APR includes points and other costs such as origination fees, it's usually higher than the advertised rate. The APR allows you to compare different mortgages based on actual annual costs.
How do I know what my loan rate will be?
Rates vary primarily based on the type and purpose of the loan, your credit history and income, loan amount, value of the property, and the number of points you are willing to pay. Once your are qualified for a loan program you will be able to see what rate you qualify for.
What are points and how many do I have to pay?
Generally speaking, points are fees used to bring down the rate. One point is equal to 1 percent of your loan amount.
How do I determine the points I want to pay?
When you get a loan, you'll have the opportunity to "buy down" the interest rate by paying discount points - essentially paying a fee to lower your interest rate.
By lowering your interest rate, you will be lowering your monthly payment and the amount of interest you'll be paying over the life of the loan. You pay more at the beginning of your loan but will save money in the long run. Keep this in mind as you determine whether to pay points.
Do I get a tax advantage from having a mortgage?
You should consult a tax attorney or accountant for specific details, but interest on a mortgage is usually tax deductible. Typically, interest on credit cards or automobile loans is not tax deductible.
What does a lender look at to approve me?
- Borrowers credit history
- Property value
- Borrowers ability to repay debt
|
