Want to win a PS4? Go Premium and enter to win our High-Tech Treats giveaway. Enter to Win

x
Solved

# interest rate vs. APR

Posted on 2013-05-15
Medium Priority
383 Views
I wanted to know what the difference is between interest rate vs. APR?  More within a mortgage environment.
0
Question by:uppercut7141
[X]
###### Welcome to Experts Exchange

Add your voice to the tech community where 5M+ people just like you are talking about what matters.

• Help others & share knowledge
• Earn cash & points

LVL 27

Expert Comment

ID: 39168906
The APR refers to the Annual Percentage Rate.

Interest rate is more generic.

If your interest rate is 1% per month, your APR will be more than 12% per year because of compounding.

If you pay points on a mortgage to get a lower interest rate, your APR will be higher because the points cost and other fees will be amortized over the life of the loan.

APR tries to give you a standard way to compare the costs of borrowing for different types of loans with all sorts of gimmicks.

http://en.wikipedia.org/wiki/Annual_percentage_rate

Note that there will be a legal definition for the effective APR in your jurisdiction.
0

LVL 37

Accepted Solution

TommySzalapski earned 2000 total points
ID: 39168953
Also of note is the APY and the GFE.
APY is the Annual Percentage Yeild which is how much the interest really comes to over a year.
For example, if you are charged 12% APR but it compounds at 1% each month, then you really end up paying about 12.68% interest at the end of the year (since the interest each month includes what was added last month).

GFE is the Good Faith Estimate where the lender gives you a number that is their best guess at the total cost of the loan over the agreed upon period. To me, that is the most important number since it's the true cost of the loan. Of course you can calculate that yourself based on the other input, but they are required to give it to you in many places.
0

## Featured Post

Question has a verified solution.

If you are experiencing a similar issue, please ask a related question

OnPage brings Secure Critical Messaging to Telemedicine.
What do responsible coders do? They don't take detrimental shortcuts. They do take reasonable security precautions, create important automation, implement sufficient logging, fix things they break, and care about users.
In this seventh video of the Xpdf series, we discuss and demonstrate the PDFfonts utility, which lists all the fonts used in a PDF file. It does this via a command line interface, making it suitable for use in programs, scripts, batch files — any pl…
Although Jacob Bernoulli (1654-1705) has been credited as the creator of "Binomial Distribution Table", Gottfried Leibniz (1646-1716) did his dissertation on the subject in 1666; Leibniz you may recall is the co-inventor of "Calculus" and beat Isaac…
###### Suggested Courses
Course of the Month10 days, 5 hours left to enroll