Why Is My APR Higher Than My Quoted Mortgage Rate?
Hello again and welcome. Great question. Let's let's take a quick look at the difference between mortgage interest rates and annual percentage rates (APR). Mortgage interest rate is basically the partial cost you will pay to borrow money to purchase your home. It does not include any other fees that is connected with your mortgage loan. For example, let's say you are borrowing $400,000 to purchase your home and your interest rate is 6 percent. The 6 percent is the cost to borrow the $400,000.
The Annual Percentage Rate (APR) on the other hand, reflects the complete cost you will pay when you borrow the money to purchase your new home. This includes points, interest rate, origination fees, and agency fees paid to the lender, etc. For example, you are borrowing $400,000 to purchase your new home and your interest is 6 percent. In addition, to that 6%, lets' say there is 1 percent origination fee, plus other lender imposed fees. With these added fees, your APR is now more than 6.1 percent. This means you are no longer paying 6 percent.
Generally, APR is mainly controlled by the lender. You can always ask your lender what is included in your APR. As you can see from above, your APR is calculated using your interest rate, plus lender imposed fees. Because of this, you APR will almost always, be higher than your quoted mortgage rate.
In conclusion, the main difference between your mortgage rate and APR, are the additional fees that is added to the APR, you need to pay to get your mortgage. Because interest rates are lower than APR rates, advertisers tend to always advertise the interest rates. Keep in mind however, when doing comparison mortgage shopping, it will be best to do so using the APR.
As always, thank you so much for stopping by. Remember, if you are thinking of purchasing your first home, please contact us. We are here to help. We have been helping Houston first time home buyers since 2011 and we can help you. I hope you have an amazing day. Until next time...Diana
