When applying for a mortgage, most people have heard two terminologies being used. Annual percentage rate (APR) is the total sum of loan you will be paying when you finally finish paying the mortgage. It is relatively different from the interest rate. The Interest rate (IR) is the daily cost you will be paying based on the existing balance on your mortgagee. For first time buyers, the terms will be new, and it’s good to understand the terms.
Mortgage interest rate?
This is the daily expense you will be incurring based on your loan and is usually expressed in a percentage rate. It’s calculated per day/per diem figure. Each month you are supposed to pay back a fraction of the amount you had borrowed together with the monthly accrued interest. The amortization formula will be used by your lender to come up with a payment schedule, which will show your mortgage interest on the loan and the principal.
The determinants of mortgage interest rate
The mortgage interest rates tend to fluctuate just like all the other financial variables. The mortgage interest rates can change daily depending on the trends and changes affecting the housing market.
Below are vital factors that affect the mortgage interest rates:
Borrower’s credit score
Lenders will use your credit score to determine your reliability when it comes to making timely payment of the loan. The credit score is just an official summary of your credit transactions. Customers who have higher credit scores get lower interest rates on their mortgage loans.
The principal amount and the down payment
Having a substantial down payment for your home will make lenders want give you a better interest rate since they assume that less risk is involved. A low down payment will require you to get a private mortgage insurance coverage. Also, when it comes to the loan type or prevailing circumstance, the closing costs and the mortgage insurance can be added to your mortgage loan.
Your home location
The location of the home will determine the interest rates, prime areas tend to have different standards compared regions that are not favored in the real estate industry. The location of your home can lower or raise the interest rates of your home.
What is a Mortgage APR?
APR involves a comprehensive measure of the expenses you will incur when borrowing money and is typically expressed in a percentage just like the interest rates. It will determine the total amount of money you will pay the lender annually for the entire time the loan is still active.
What determines my Mortgage APR?
The APR includes the mortgage interest rates, original mortgage fees, discounts points and additional expenses that are associated with getting the loan. A higher APR means higher monthly payments over the loan term.
Points To Note
When lenders market APRs, most of them provide rates the “ideal” market conditions like excellent credit scores by borrowers, spotless documentation, etc. Therefore depending on a borrower’s circumstances, the APR will be adjusted accordingly. The rates will go higher.
Are you in the market to purchase a home in Rancho Santa Margarita, Coto de Caza, or Mission Viejo? Click here to talk to the Ryan Grant Team today!