Mortgage Interest Rate vs. APR (what is APR?)

Hey there, Matt the Mortgage Guy recording a quick video to talk about interest rate versus APR. What's the difference? What does each one of them mean? Which one as a consumer should I be concerned with? And really misinformation might be out there or something that you've heard that may or may not be true. So before I get into it, talking about interest rate versus APR, I want to quickly say thank you for stumbling across my video, straightforward content on mortgage, real estate, personal finance, real estate investing. If you like straight to the point, good, honest information for somebody who's got a little experience with all that stuff, please smash the like button for the YouTube algorithm. Consider subscribing. Without further ado, we'll get into it. The interest rate is simply the cost of borrowing money. Interest rate is just talking about this $400,000. What the cost of borrowing that $400,000 is. The APR, annualized percentage rate, is basically the annualized cost of the loan when you factor in all the other costs, fees, points, things like that. And that's all it really is. I get this really often where people call me and they're like, what's the APR? And they're really like dead set and they got to know the APR. For loan comparison purposes, it's an important number because apples to apples, if you've got a 2.5% interest rate from two different lenders, the one who has the higher fees is going to have the higher APR. With that being said, don't get super stuck on it, especially when you're getting a loan and you know, I've had people before that they freaked out, hey, you know, I thought I was getting this rate and I see this APR. Of course the APR is higher. It's factoring in the total cost of that loan and loans aren't free ever. I have got an example up here and I've actually, hanging out in the tree, got a loan estimate. Loan estimate you'll get whether you're doing a refinance or purchase, I've got other videos on that and on the front page, because it's how you calculate your payment, interest rate, see that? Hopefully we crossed out the person's name. Interest rate, 2.375. Then you get to page three, all the closing costs and all that stuff's factored in, and you've got 2.569 as the APR. As you can see, the APR is higher, it's factoring in all the costs. What I want to warn people against is really giving that APR number more credit than is due. Because in this example, we've got a 2.375% 30 year fix, $10,000 in loan costs. When you spread out from the cold course of the loan, 2.569 APR. Not that bad, right? But you have to think about when you're getting into a loan, how long are you going to be into it? Do I want to spend $10,000 up front to get that super low smoking rate? In some scenarios, like this guy's scenario, he's going to stay in this loan for a long time. It makes sense for him, but don't put too much stock in APR because again, it's projecting the total loan costs over the whole life of the loan. And trust me when I tell you, the percentage is less than 5% of people stay on their loans for the life of it. More important is with a mortgage professional or online, there's calculators where you can calculate break even the cost for the loan and the interest rate, and you can do a break even analysis. If I spend this much extra to go this much lower in rate and make my payment go this much lower, how long is it going to take me to break even on that? Generally speaking, when I'm talking to people, if it takes more than three years, it's not worth it. So that's for another video. In this video, I want to simply explain interest rate versus APR. I think we did that on a very simplistic analysis of it. If you want more in depth or exactly what's calculated in APR, I'm happy to help. Leave a comment below. Shoot me an email, Matt at MattTheMortgageGuy.com. Until next time. Thanks for watching.