For the first time in a while, mortgage rates are on a small win streak. 30-year fixed-rate interest rates improved in seven of the last eight days.
Here's a short video from our Daily Video series.
But, as mortgage rates fall, APRs are falling faster. There's a good reason for that, and I'll come back to it in a minute.
First, let's talk about APR.
APR stands for Annual Percentage Rate. It's a government calculation that shows the cost of keeping a mortgage to its completion. APR adds your projected interest paid, mortgage closing costs, and loan-related fees to show you what your overall interest rate was on what you actually borrowed.
I explain this idea more with examples in the video above.
The critical part to remember is that your APR is not your interest rate. Your interest rate is your interest rate. Your APR is a hypothetical. And, an impractical one at that, because APR makes egregious assumptions about you and your loan.
Again, we cover this in the video, with the key part being that lenders can lower your APR by simply charging more fees on your loan. So, if nobody told you before, let me tell you now: shopping for a mortgage by APR is a terrible idea.
You're probably seeing this in the marketplace.
As mortgage rates go higher, lenders are charging buyers more discount points on their loans. Discount points lower your rate and your long-term interest costs, which means they also lower your APR.
Unscrupulous lenders will charge LOTS of discount points to make APR look attractive relative to the competition. Buyers who shop by APR often pay more.
I don't want you to make that mistake. Give the video a watch to learn more about APR and how to work it in your favor. The video's short, and it's good for your mortgage education.
Also, remember that the Federal Reserve meets later this week. Mortgage rates could be volatile.
Happy Homebuying!
|
