Have You Ever Thought About How The Annual Percentage Rate And The Interest Rate Differ? Let us Quickly Learn What They Are First

APR

If you’ve been checking interest rates online, you may see loan programs offering 3.7% interest for 30-year fixed rate mortgages, or 3.55% for a 15-year mortgage. But looking again, the same loan also says 3.82% APR. What does that mean? What is APR, anyway?

APR Means "Annual Percentage Rate"

Sometimes the interest rate quoted by lenders will be the same as the APR (Annual Percentage Rate). But APR can also be quoted at a higher percentage than the loan’s basic interest rate. The basic interest rate a lender indicates includes only interest charged on the actual mortgage amount. APR reflects the interest charged when lender fees are included.

Why is it important to know the difference between interest rate and APR?

Let’s say Lender A. is offering a $380,000 30-year fixed rate mortgage for 3.8% interest. But the APR is 4.1%. 

Another lender is offering a $380,000 30-year fixed rate mortgage for 3.9% interest. But this lender has fewer additional costs and fees and their APR is 4.0%. Which loan would be the better deal?

The APR isn’t the only criteria for selecting one mortgage lender over another, but it can be an important one because it is tied directly to your monthly mortgage payment. The lower the APR, the lower your monthly payment will be.

You can calculate APR for a loan on your own by using a simple formula: the total cost of fees and interest divided by the principal (amount of the loan), divided by the number of days in a year (365). Then, multiply that number by 100 and you will have the APR.

Most lenders automatically do this calculation for you, but you can find advertisements with a simple interest rate being featured in bold numbers, while the APR is in smaller, less visible numbers. No matter what lender you’re considering, you should always check both the simple interest rate and the Annual Percentage Rate (APR). Thanks to a federal law, the Truth in Lending Act, lenders must provide you with a statement disclosing all the charges related to your loan, and how much it will cost to repay the loan in full before the end of its term.

Knowing the APR for the mortgage you’re considering is important, but just a reminder. The APR for a 15-year fixed rate mortgage isn’t comparable to one for a 30-year home loan or an adjustable rate mortgage (ARM). Working with a home loan professional, you can compare APRs and other loan terms to choose the best mortgage for your needs.

Sources

https://www.quickenloans.com/blog/annual-percentage-rate-what-is-apr

Do You Always Pay PMI? Learn Everything You Need About Private Mortgage Insurance This Instant

Private Mortgage Insurance

If you’ve been checking interest rates online, you may see loan programs offering 3.7% interest for 30-year fixed rate mortgages, or 3.55% for a 15-year mortgage. But looking again, the same loan also says 3.82% APR. What does that mean? What is APR, anyway?

APR Means "Annual Percentage Rate"

Sometimes the interest rate quoted by lenders will be the same as the APR (Annual Percentage Rate). But APR can also be quoted at a higher percentage than the loan’s basic interest rate. The basic interest rate a lender indicates includes only interest charged on the actual mortgage amount. APR reflects the interest charged when lender fees are included.

Why is it important to know the difference between interest rate and APR?

Let’s say Lender A. is offering a $380,000 30-year fixed rate mortgage for 3.8% interest. But the APR is 4.1%. 

Another lender is offering a $380,000 30-year fixed rate mortgage for 3.9% interest. But this lender has fewer additional costs and fees and their APR is 4.0%. Which loan would be the better deal?

The APR isn’t the only criteria for selecting one mortgage lender over another, but it can be an important one because it is tied directly to your monthly mortgage payment. The lower the APR, the lower your monthly payment will be.

You can calculate APR for a loan on your own by using a simple formula: the total cost of fees and interest divided by the principal (amount of the loan), divided by the number of days in a year (365). Then, multiply that number by 100 and you will have the APR.

Most lenders automatically do this calculation for you, but you can find advertisements with a simple interest rate being featured in bold numbers, while the APR is in smaller, less visible numbers. No matter what lender you’re considering, you should always check both the simple interest rate and the Annual Percentage Rate (APR). Thanks to a federal law, the Truth in Lending Act, lenders must provide you with a statement disclosing all the charges related to your loan, and how much it will cost to repay the loan in full before the end of its term.

Knowing the APR for the mortgage you’re considering is important, but just a reminder. The APR for a 15-year fixed rate mortgage isn’t comparable to one for a 30-year home loan or an adjustable rate mortgage (ARM). Working with a home loan professional, you can compare APRs and other loan terms to choose the best mortgage for your needs.

You can find interest-only mortgages, or 15-year fixed or 30-year fixed super jumbo mortgages up to $15 million. Adjustable rate mortgages with varying terms are also available in super jumbo mortgages. You may find the 5/1 ARMS, 7/1 ARMS and 10/1 ARMS more competitive in line with your overall financial needs. Or the interest only options a better  overall fit for your global debt service cash flow objectives.

You don’t need to fit into the standard conventional mortgage “box” if you want to buy a property worth $15 million or more. Working with a knowledgeable independent mortgage broker such as California Platinum Loans, you can evaluate a variety of pathways to getting the super jumbo mortgage you want and need. Think of California Platinum Loans like a jumbo mortgage concierge, who can make your path toward the property and home loan you desire as smooth as possible.  Get in touch with us to learn more how we can make that happen for you today!

Sources

https://www.quickenloans.com/blog/dont-want-pay-mortgage-insurance-heres-avoid

Thinking of Purchasing a Property Any Moment This Year or The Next? Learn How Loan To Value (LTV) Can Help You Succeed (or Fail)

LTV Loan To Value

Have you heard of the term “LTV”? In real estate, it means “Loan to Value.” A loan to value ratio is a comparison of your loan amount with the value of your home. Lenders figure out your LTV ratio by dividing the amount of your mortgage into the purchase price or total appraised value of your home.

For example, if you have a mortgage for $480,000 and your home’s appraised value is $500,000, you have an LTV of 96%. This is a high LTV ratio. In home lending, an optimal “magic LTV number” from the lender’s perspective is 80% or less. This is the reason many people think you must put a 20% down payment to buy a home.

Do I have to put 20% down payment to buy a home?

People who put 20% or more down on a home purchase are eligible for conventional 30-year and 15-year fixed rate home mortgages with lower interest rates than those who can afford lower down payments. If you have an LTV lower than 80%, you will usually not be required to pay PMI (private mortgage insurance), an additional payment that provides insurance to your lender in case you can’t meet your mortgage payments.

There are several home mortgage programs which don’t require 20% down payments, and which will make loans up to 97% LTV. In the case of VA home mortgages, you could be eligible for a home loan with no money down: in other words, up to 100% LTV.

FHA home loan programs can have as high as 97% LTV — requiring only a 3% down payment.

How does LTV affect refinancing your home mortgage?

If you’ve paid your mortgage for a while, you’re likely to have built up equity in your home, which means you will also have a lower LTV. A lower LTV can benefit your application for a 30-year fixed rate or a 15-year fixed rate refi of your conventional home mortgage. You can also apply to refinance your FHA home mortgage or VA home loan.

The LTV ratio isn’t the only number affecting your mortgage loan rates and payments. Working with a qualified home mortgage specialist will help you to know your options and be in the best possible position when you’re buying a home or refinancing your current mortgage.

Sources

https://www.investopedia.com/terms/l/loantovalue.asp
https://www.quickenloans.com/learn/loan-to-value-explained