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What is APR?

Mortgage Library: Ask a Mortgage Related Question: Answers: What is APR?

Question:

Please explain what is APR and how it is calculated.

P.
Portland
Oregon

Answer:

Hello and thank you for your question.

The APR is an interest rate that is different from the note rate. The APR is an interest rate reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage because it takes into account points and other credit costs, e.g. fixed rate loan at 8% with 1 point has an APR of 8.107%. The APR allows home buyers to compare different types of mortgages based on the annual cost for each loan. The APR does NOT affect your monthly payments. Your monthly payments are a function of the interest rate and the length of the loan. 

Regards,

S. M.

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