Megan Woissol | November 11, 2021
Borrowers often ask, “What is the difference between Interest Rate and APR?”
It’s a fair question. What are these numbers, and what exactly do they mean?
Interest Rate is the annual cost of the loan to the borrower. It is expressed as a percentage. The interest rate is only the interest that you will pay on the mortgage and rates are often quoted in .125% increments.
You may notice a breakdown of several costs in your monthly mortgage payment. When you pay your mortgage every month, the amount you pay is typically all inclusive of P.I.T.I. (Principal, Interest, Taxes and Insurance). Principal is the original loan you took, interest is an additional cost made up of a percentage of the original loan. These costs are collected and kept by the lender.
Property taxes are paid directly to the county and insurance is paid to your insurance company. However, these are typically paid out of an escrow account by the lender, which a portion of your monthly mortgage payment contributes to. Something to note as you read on is that the taxes and insurance portion of your monthly payment will not be included in the calculation of your APR.
Borrowers often ask, “What is the difference between Interest Rate and APR?”
It’s a fair question. What are these numbers, and what exactly do they mean?
Interest Rate is the annual cost of the loan to the borrower. It is expressed as a percentage. The interest rate is only the interest that you will pay on the mortgage and rates are often quoted in .125% increments.
You may notice a breakdown of several costs in your monthly mortgage payment. When you pay your mortgage every month, the amount you pay is typically all inclusive of P.I.T.I. (Principal, Interest, Taxes and Insurance). Principal is the original loan you took, interest is an additional cost made up of a percentage of the original loan. These costs are collected and kept by the lender. Property taxes are paid directly to the county and insurance is paid to your insurance company. However, these are typically paid out of an escrow account by the lender, which a portion of your monthly mortgage payment contributes to. Something to note as you read on is that the taxes and insurance portion of your monthly payment will not be included in the calculation of your APR.