With each payment, your loan balance decreases and you will pay a smaller amount of interest with each subsequent payment. APR stands for annual percentage rate and represents the cost of your mortgage by including the interest rate and some other closing fees and costs. Your interest rate is the percentage you pay to borrow money from a lender for a specific period of time. The interest rate on your mortgage could be fixed, meaning that it stays the same for the duration of your loan.
The interest rate on your mortgage can also be variable, which means that it can change based on market rates. For example, Quicken Loans, the country's largest mortgage lender by volume of origination (number of loans closed), is affiliated with Amrock, a title insurance, mortgage settlement and home appraisal company. Rates for 30-year fixed-rate mortgages are around 3.36%, while 15-year fixed-rate loans stand at 2.77%. A discount point is a charge you can choose to pay at closing for a lower interest rate on your mortgage.
The initial interest rate on an ARM tends to be significantly lower than that of a fixed-rate mortgage. Mortgage interest rates generally move independently and in advance of the federal funds rate, or the amount banks pay to borrow. If you want the best mortgage rate, it's essential that you compare loan offers from several mortgage lenders. Lenders also consider factors such as current market interest rates and housing economy conditions when calculating their rate.
Your own personal financial scenario will also affect the mortgage interest rates offered to you. While there are a few ways to lower your APR, such as avoiding private mortgage insurance by offering at least a 20% down payment, the best way to secure a better rate is to compare lenders. Because the APR includes both the interest rate and certain charges associated with a home loan, the APR can help you understand the total cost of a mortgage if you maintain it for the entire term. This can happen in an environment of declining interest rates, when lenders may assume in their advertising that their interest rate will be lower when it is restored than when you take out the loan.
The interest rate associated with a mortgage is a reflection of the cost you'll pay to borrow the money.