3.89- What is an annual percentage rate?

An Annual Percentage Rate (APR) is also commonly referred to as"interest rate". In simple terms, it is the interest that has to be paid per year, on the mortgage loan. The way such an interest rate is derived is through means of dividing the closing costs by 30 for the stereotypical 30 year fixed mortgage loan, for example. If we talk about a 15 year loan, then we would divide the costs by 15.

The second step is to incorporate this amount to the note interest rate. This is how you calculate the APR. Furthermore there is an obligation on financial institutions such as banks etc. to reveal the APR. A lower APR corresponds with mortgage payments in the sense that they both have a positive correlation.

A low APR implies that the mortgage payment due every month will be lower too. An APR is an important factor that is taken into account when the customer is deciding whether he or she should pursue the course of action, whether to accept or deny the loan offer from the lender. Therefore an APR plays a significant role in the acceptance process.