What is an annual percentage rate?
When you take out a mortgage or a large loan, you are often told what your annual percentage rate (APR) will be. It’s especially important to know this, since the APR can differ significantly from the percentage rate the company advertises. Many countries, including the US and Canada require lenders to state the APR so that consumers can make informed choices about the amount of interest they can reasonably expect to pay. The annual percentage rate on a mortgage doesn’t just include interest and compound interest, but it also includes other costs. Generally, fees like points, loan fees, closing costs, and loan origination fees will be included. The APR may also include the cost of mortgage or life insurance, any fees charged by attorneys or notaries, and fees charged for applying for a loan. One of the things you’ll generally see included in the annual percentage rate is the amount of interest you might prepay. For instance, some loans are scaled so that when you begin making payments,
The annual percentage rate is the bottom-line number indicating the cost of borrowing money or what is paid for investing money. It is most commonly used to refer to the interest rate charged by mortgage lenders and credit cards. Annual percentage rate is often abbreviated APR. It factors in many fees and costs that otherwise might be hidden from the consumer.
