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What Is APR And Why Is It So Important?

A couple looks up their APR on a laptop computer on the bed in a bedroom.

Why do potential homebuyers make such a big deal about APR? APR can give them a deeper understanding of how much their mortgage will cost them over the loan’s life and is also a great tool to use to compare offers from different lenders.

The term “APR” will show up on many documents and is used a lot in this industry, but do buyers understand what it means? They definitely should, because understanding it can save them a lot of money.

What Is APR?

APR is an acronym for the Annual Percentage Rate. This reflects the amount a homebuyer will pay year over year for your home purchase and is usually expressed as a percentage. While their interest rate is the dollar amount the lender charges over the loan’s life, the APR includes the interest rate and most of the fees paid during their close of escrow period.

When purchasing a home, the APR and interest must be considered. When buying a home, homebuyers should be aware of both these percentages while comparing lenders.

There are cases where a lower APR does not really mean a cheaper loan. Since it is a percentage calculated over the loan’s life, it assumes that buyers will have the loan for the full term. If a homebuyer is planning to pay off their mortgage early, the cost of the fees will be spread over the amount of time they have their loan instead of 30 years, which results in a higher APR.

Not all fees are included in the APR of a loan, and potential homebuyers should know which fees are included:

Fees Included In APR

Below are examples of some fees that are included:

  • Points: Points are a set amount of funds used to lower your interest rate. 1 point is equal to 1% of the total mortgage amount.
  • Prepaid Interest: Prepaid interest is charged by the lender and reflects the amount of interest that builds up between the property’s closing and the first mortgage payment.
  • Administration Fees: This is the fee that a lender might charge a buyer for preparing their loan. JVM doesn’t charge any origination fees.
  • Private Mortgage Insurance (PMI): PMI is required when a buyer puts less than 20% down for the home purchase.
  • Escrow/Settlement Fee: This fee covers the services escrow provides during the close of escrow period.

Contact Us To Learn More

Depending on the home value, property type, and its location, the fees in the APR could vary. To learn more about the APR and get more specific scenarios, contact our expert team! Our Client Advisors are available 7 days week for any questions by phone at (855) 855-4491 or by email at jvmteam@jvmlending.com. 

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167