What is the difference between the interest rate and the APR?

You'll see an interest rate and an Annual Percentage Rate (APR) for any mortgage loan advertised or applied for. The easy answer to "why" is that federal law requires the lender to tell you both.

The APR is a tool for comparing different loans, which will include different interest rates but also different points and other terms. The APR is designed to represent the "true cost of a loan" to the borrower, expressed in the form of a yearly rate. This way, lenders can't "hide" fees and upfront costs behind low advertised rates.

While it's designed to make it easier to compare loans, it's sometimes confusing because the APR includes some, but not all, of the various fees and insurance premiums that accompany a mortgage. And since the federal law that requires lenders to disclose the APR does not clearly define what goes into the calculation, APR's can vary from lender to lender and loan to loan.

APR is calculated over the life of the loan, most commonly 30 years. The vast majority of home owners will refinance every 5 years, and move every 7-9 years. Adrian Tavolacci can show you the true impact of different loan options, and how the lower APR can actually COST you money depending on how long you will have that loan. Choosing your lender by APR alone can be an expensive mistake.

The APR on a loan tied to a market index, like a 5/1 ARM, assumes the market index will never change. But ARMs were invented because the market index changes and makes fixed rate loans cheaper or more expensive to make -- that's why they're variable rate in the first placed!

The lesson is, that APR can be a guide, but you need a mortgage professional to help you find the truly best loan for you.  Contact Adrian Tavolacci directly at 616-575-6965 or by email for a pre-application consultation.