As borrowers sit down to review their Florida home loan paperwork, they’ll often ask about the difference between their interest rate and the listed Annual Percentage Rate (APR).
In short, the annual percentage rate represents the actual cost of your Florida home loan – expressed as a yearly rate. This way, mortgage lenders aren’t able to “hide” fees and upfront charges behind the low rates they advertise.
I’m all for transparency, and we list all of our fees in up front and clear fashion for each of our Florida home loan borrowers. However, the interest rate vs. APR concept can sometimes prove confusing because the APR includes some of the costs that go along mortgage (insurance premiums, etc). The real confusion sets in because there’s no set rule as to what “extra” items are folded into a lender’s posted APR figure. As such, APRs often vary from lender to lender and home loan to home loan.
A general rule I tell my home loan customers to follow is to look at the percentage point difference between their quoted home loan rate and the APR. Typically, we see about 1.5 percentage points between our clients’ home loan rates and the APR on their documentation. Too much more of a gap than that, and it’s possible that a lender has more fees padded in than you might like.
