The Annual Percentage Rate is the total amount you’ll be paying when you take a mortgage loan. Quite often, the APR value is confused with the interest rate. This is because the interest rate is merely the interest you’ll be paying on the principal amount.
On the other hand, the Annual Percentage Rate will involve additional fees such as procurement costs, closing costs, brokerage fees, etc.
Thus if you observe carefully, the Annual Percentage Rate will always be equal to or more than the interest rate. While the difference is subtle, it still makes a lot of difference while considering which bank or lending service to take a mortgage loan from.
Therefore, while looking at the various options, always look for the Annual Percentage Rate and the interest rate. In fact, it is compulsory for the Annual Percentage Rate to be displayed along with the interest rate. Comparing APRs will help you get a better idea about which service you should opt for.
Furthermore, usually, the one with a lesser APR will be more beneficial for you because it means they’re charging lesser fees on other aspects and sticking close to the interest rate alone.
For instance, if you take a mortgage loan of $200,000 at an interest rate of say 5%. The final amount to be paid is shown as $12,300. Now we know that 5% of $200,000 is $10000. This means the additional $2,300 is perhaps other fees such as brokerage costs.
Now, if you have to calculate the APR, all you need to do is divide $12,300 by $200,000, and the resultant value will be your APR. When you do so, you’ll find that the value is 0.0615. Multiply this by 100, and you get 6.15. This is the Annual Percentage Rate you’re paying to the lending service to pay off your mortgage loan.