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Maximizing Your Mortgage Knowledge: APR vs. Interest Rate

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May 4, 2023

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When it comes to taking out a mortgage loan, there are a lot of factors to consider, including the interest rate, the loan term, and any fees or charges associated with the loan. APR and interest rate are two important terms to understand because they can help you compare different mortgage loans more accurately.

Let's start with the interest rate. This is the percentage of the loan amount that you'll pay in interest each year. For example, if you take out a $200,000 mortgage with a 4% interest rate, you'll pay $8,000 in interest over the course of one year.

The APR, on the other hand, is a more comprehensive measure of the total cost of a loan over its lifetime. It takes into account not only the interest rate, but also any other fees or charges associated with the loan, such as origination fees, points, and closing costs. Essentially, the APR gives you a more accurate idea of the true cost of borrowing money.

So why is it important to look at both the APR and the interest rate when comparing mortgage loans? Well, a mortgage with a lower interest rate may actually have a higher APR if it has more fees and charges associated with it. By looking at the APR instead of just the interest rate, you can get a better sense of the overall cost of the loan.

For example, let's say you're considering two different mortgage loans. The first loan has an interest rate of 3.5% and an APR of 4%, while the second loan has an interest rate of 4% and an APR of 4.5%. At first glance, it may seem like the first loan is the better deal because it has a lower interest rate. However, when you factor in the additional fees and charges associated with the loan, the second loan may actually be the better option.

When using a mortgage calculator, be sure to enter the APR, not just the interest rate. This will give you a more accurate estimate of your monthly payments and total cost of the loan.

Hitch can help you compare different mortgage loans and understand the difference between APR and interest rate. Our platform allows you to easily compare rates, fees, and other loan terms from multiple lenders, so you can find the best mortgage loan for your needs and budget.

In conclusion, understanding the difference between APR and interest rate is an important part of the mortgage shopping process. By looking at both numbers, you can make a more informed decision about which mortgage is right for you. With Hitch, you can compare different mortgage options and find the best one for your unique financial situation.

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