difference between Interest Rate and APR

[yehong]

I am in the market for a house. An agent told me that he can lock down the loan for me at 5.66% "Interest Rate", but the "Annual Perecent Rate" is 5.85%. Is that true or the agent is just trying to play a game?

[DallasLoanGuy]

http://www.mtg-net.com/sfaq/faq/apr.htm

 

 

apr is not the figure the loan is amortizing off of

[cygnet]

Consider the APR as a number which tries to get to the real cost of the money you borrow. It takes into account how much you'll spend to get that money and treats those costs as prepaid interest. Generally the stuff in the 800 section of your Good Faith Estimate (some will disagree) as well as the prepaid interest on line 901 are what go into the calculation. Unfortunately 50 lenders will give you 50 different answers as to what is included so it's almost useless except as a general guideline. If the APR is alot higher than the rate you'll want to take a closer look at what the fees are.

 

It is much more important to get a Good Faith Estimate and any reputable lender, broker or loan officer will be happy to provide one (or several if you wish to look at different options).

 

The problem with APRs is that anyone can decide not to check the box for points or a particular fee and give you a false APR. Its as simple as that, checking and unchecking boxes with really no kind of safeguard. Same with the rates and APRs in the newspaper or many websites.