Home Loan Interest Rates

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How important are your home loan interest rates?

Despite what lenders may tell you, your home loan interest rates may not be the most important factor to consider when choosing a home loan. In fact, there are so many other considerations that they really push the home loan interest rates towards the bottoms of the list. When you apply for your home loan, you should have an idea of the home loan interest rates available to you at that time. After that, and more importantly, look carefully at the loan to determine how much it is really costing you.

APR versus note rate

APR, or Annual Percentage Rate is a much different rate than the note rate, or home loan interest rates. It was designed to help consumers determine the true cost of a loan so they would have a basis to compare loans from different lenders. Basically, APR takes the home loan interest rates and adds all costs and fees associated with the loan. Then that number is turned into a percentage that looks a lot like the home loan interest rates. However, there is no set way in determining APR so the number can be very confusing. Some lenders include costs in their APR calculations thus making the figure irrelevant compared to the other lender's APR.

Other costs and fees

What can really cost you when taking out a loan is not necessarily the home loan interest rates but instead the other costs and fees a lender charges you to lend you money. One major factor is points, which are a percentage of the face value of a loan that is paid up front. Paying points usually allows you a lower interest rate, so it can be reasonable to pay points if you plan on keeping your house for a long time, this way you will lock into the lowest rate possible. You should also keep in mind any other closing costs or fees your lender would charge you and determine whether or not they are excessive. Some lenders ask for an application fee, and some pay for your appraisal. Find out how each piece of the loan is being paid for and make sure you are comfortable with the number if the answer is you.

 

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