When you are comparing mortgage options, it is important to understand the difference between the interest rate and APR. When you see a loan rate advertised, you’ll also see a corresponding APR (4.5%/4.762% APR). This Annual Percentage Rate is the total cost of your loan (interest and fees) expressed as a single number. The purpose is to give you one number for comparing multiple loans.
But it’s an imperfect science.The problem with using APR as designed is that the calculation applies to the entire length of the loan, and some people use mortgage loans for only a few years due to refinancing or sale.
So be careful with your comparisons. Using APR for comparison can become misleading. Below, you can see the low APR option would cost over $1,500 extra if used only three years. In the fifth year, the lower APR begins to pay off with a savings of a little over $500.
Here’s a quick tip… The bigger the difference between the rate and the APR, the more likely it is that you will be paying higher fees. This is great to know when you see a really low rate advertised. An APR that’s anything more than a quarter of a percent or higher than the actual rate is an indication that the closing fees are going to be more.
Another way of looking at this example is to ask yourself whether you prefer $3,000 of savings in the bank or a payment that’s $30 less per month. If you are more comfortable with money in the bank, lean toward lower upfront costs. If you are more comfortable with the lowest possible payment and believe you’ll use the loan for five years or more, then the lower APR alternatives make sense.
Although reviewing loan options may seem daunting, as long as you choose an experienced and trustworthy Mortgage Consultant you will have an expert to walk you through the process.
At Marketplace Home Mortgage, L.L.C., we pride ourselves on helping you make a truly informed decision, so that you can choose the loan that is right for you. To get started, find a branch near you.
Based on information sourced from ©2006-2018 Top of Mind Networks, LLC
For some buyers, an FHA home loan may work when others can’t.
The FHA home loan program is designed to help promote homeownership. Loans distributed through this program are insured by the Federal Housing Administration. For many buyers, FHA loans make it easier to qualify for a mortgage.
When it comes to FHA Loans, here are a few of the features that can be beneficial:
- Low Down Payments – As little as 3.5% down will work in most instances, and 5% covers most others.
- Higher Loan Amounts – In some areas, FHA maximums can exceed conventional loan limits.
- Lower Total Cash to Close – Sellers can help pay closing costs, and borrowers can receive gift money toward their down payments.
- Streamlined and Cash Out Refinancing – Subsequent refinancing can be far easier and more lenient than with conventional loans.
- Purchase and Rehab Financing – The FHA 203k loan can be a great option for the purchase of homes in need of a quick spruce up or even major remodeling when you don’t have sufficient funds to do it on your own.
Not connected with a Loan Officer yet? Find one at a branch near you.
A USDA rural home loan is a type of loan backed through the Rural Housing Division of the U.S. Dept. of Agriculture. It is available to millions of eligible primary home buyers with low to moderate incomes or scarce funds for down payments.
Features, benefits and things you need to know:
Zero Down – No down payment is required for a USDA rural home loan. Thirty-year, fixed-rate loans with no pre-payment penalty are the norm. Rates are very competitive with conventional loans.
Eligible Property – These loans are limited to “rural” areas, though you might be surprised by some of the suburbs of major metropolitan areas that qualify as rural. Homes should be modest in size and cost and constructed per local codes and regulations.
Eligible Borrowers – Funds are available for qualified borrowers who earn up to 115% of the area median income. Even candidates who have had past credit issues with late pays, bankruptcies or foreclosure may be eligible. Borrower’s income must support the proposed payments and meet the program requirements for approval. Primary occupancy is required. This program is not for investment properties.
Benefits – Minimum cash is needed to close. The USDA Guarantee Fee and eligible closing costs may be financed. Gift money, grant money, and seller contributions are allowed.
Program details sourced from Top of Mind Networks, LLC. All rights reserved.
If you have questions or want to learn about areas that meet the rural designation criteria, please don’t hesitate to reach out. We’re happy to help.