Interest rate vs APR

[lara]

I know that the actual cost of the loan is the APR and not just the interest rate. What is their relationships and how do you figure out the numbers?

[agape]

As you said it correctly, APR is the true interest rate for a loan. This rate includes the cost of any points paid, mortgage insurance and other fees.

[spacy]

Just to clarify that a point is equal to 1% of the loan. Sometimes they are also called discount points.

[admin]

They calculate the APR by spreading all loan fees over the term of the loan. Then they use this number to determine a percentage that these fees work out to be over that period and then add it to the interest rate charged. This is then stated as the APR.

It is a very cumbersome way of disclosing the costs of the loan and most consumer really do not understand it. Currently there is legislation being worked on to help iron out a better way to disclose the costs of aquiring a home loan.