When you're shopping for a mortgage, it's easy to focus on the interest rate—but there's another number that tells a more complete story: the APR, or Annual Percentage Rate. We believe in helping our members make informed financial decisions, so let’s break down what APR really means and why it’s important.
APR stands for Annual Percentage Rate, and it reflects the total yearly cost of borrowing. Unlike the interest rate, which only shows the cost of the mortgage interest itself, APR includes:
- The interest rate
- Fees (appraisal costs and loan setup charges)
- Any other mandatory costs associated with the loan
Think of APR as the “all-in” price tag on your mortgage.
Why Is APR Important?
APR gives you a clearer picture of what you’ll actually pay over the term of your mortgage. Here's why it matters:
- Better Comparisons: Two lenders might offer the same interest rate, but if one has higher fees, their APR will be higher. That makes APR a powerful tool for comparing mortgage offers.
- Transparency: APR helps you understand the full cost of borrowing—not just the monthly payment.
- Smart Planning: Knowing your APR helps you budget more accurately and avoid surprises.
Fixed vs. Variable Numbers
When reviewing mortgage options, it’s helpful to know which numbers are fixed and which might change:
- Fixed Interest Rate: If you choose a fixed-rate mortgage, your interest rate—and often your APR—will stay the same for the term of the loan.
- Variable APR: With a variable-rate mortgage, your interest rate (and APR) can change based on market conditions.
- Fees: Most fees included in APR are fixed at the time of closing, but they can vary between lenders.
A Simple Example
Let’s say Synergy Credit Union offers:
- Interest Rate: 5.79%
- Appraisal Fee: $600
- APR: 5.878%
The difference between the interest rate (5.79%) and the APR (5.878%) reflects the cost of borrowing charges, such as the appraisal fee. This example shows how APR gives you a more complete picture of what the mortgage will cost you annually—not just the interest.
Now, imagine another lender offers:
- Interest Rate: 5.79%
- APR: 6.00%
Even though the interest rate is the same, the higher APR suggests that the other lender’s fees are more expensive. That means Synergy’s mortgage could be more cost-effective over time, even if the monthly payments look similar.
Final Thoughts
When choosing a mortgage, don’t just look at the interest rate—look at the APR. It’s your key to understanding the true cost of borrowing and making confident, informed decisions about your financial future.
If you have questions or want to explore mortgage options, our team at Synergy Credit Union is here to help.
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