What is the difference between the interest rate and the A.P.R.?

The federal law requires the disclosure of the Annual Percentage r.ate with the rat.e

The A.P.R. is a tool for comparing, which includes different points and other terms. The A.P.R. is designed to represent the "true cost" to the borrower, expressed in the form of a yearly percentage. This way, lenders can't "hide" fees and upfront costs behind low advertised rates.while it's designed to make it easier to compare l.oans, it's sometimes confusing because the A.P.R. includes some, but not all, of the various fees and insurance premiums. And since the federal law that requires lenders to disclose the A.P.R. does not clearly define what goes into the calculation, A.P.R.s can vary.

The A.P.R. is tied to a market index, like a 5/1 ARM, assumes the market index won't change. But ARMs were invented because the market index changes and makes fixed l.oans cheaper or more expensive to make -- that's why they're variable.

So, A.P.R.s are at best inexact. The lesson is, that A.P.R. can be a guide, but you need a professional to help you find the truly best program for you.

Note when you're browsing for loan terms that the A.P.R. will not tell you about balloon payments or prepayment penalties, or how long your rate is locked. Also, you'll see that A.P.R.s on 15-year loans will carry a higher relative rate due to the fact that points are amortized over a shorter period of time.