What can I ascertain from the previous information?
How is Interest Rate different from APR? They’re both interest rates.
When someone says the financed their house at xx.xx% what number are they talking about.
More specifically if I follow the rule of “it’s a good idea to refinance if you can cut a full percentage point,” what number am I looking at?
Why does there have to be points involved? I thought that was a means to buy down the rate; so I’d expect to see a row where the points were 0. Furthermore, there’s negative and positive points; I can’t even conceptualize why this would be possible.
My uneducated understanding is points refer to PMI (Private Mortgage Insurance). I think to avoid PMI you have to either have 20% equity in your home or 20% down payment when purchasing a home. I read the table as -0.500 as meaning if you have to take a 1/2 point in PMI then your APR will be 5.234 (Interest rate plus 1/2 point cost).
Here is the website on PMI, I don’t have time to read/research it to see if my uneducated view holds water.
Interest Rate is, well, the interest rate on the loan. APR is an annualized representation of the total cost of the loan. APR is the interest rate plus an annualized representation of all relevant fees (points, origination fees, etc…).
Typically, they are talking about the interest rate.
Tricky question. Strictly speaking, you want to compare your current APR with the APR of the potential offer. However, your current APR is not the APR of the original loan. This is because you would have already paid fees, points, and whatnot on your existing loan. An easier comparison would be to compare your current interest rate with the interest rate of the potential offer, and decide whether you save enough money to make paying the fees on the potential offer worthwhile.
Points are simply money that is paid or received in exchange for a different interest rate; a lender doesn’t have to offer a no points loan. A negative point loan is where the lender pays you money up front and then proceeds to charge you a higher interest rate over the life of the loan. In this case, the lender is offering you three options:
Interest Rate is 5%/year for 30 years. The lender will pay you an additional 0.5% of the total loan value in cash. The effective annualized cost of the loan is 5.234%
Interest rate is 4.75%/year for 30 years. To receive this rate, you pay the lender an additional 0.875% of the total loan value upfront in addition to relevant fees. The effective annualized cost of the loan (including points and all fees) is 5.089%.
Interest rate is 4.5%/year for 30 years. To receive this rate, you pay the lender an additional 2.125% of the total loan value upfront in addition to relevant fees. The effective annualized cost of the loan (including points and all fees) is 4.942%.
So, assuming you hold the loan for the entire 30 years, the third option would be the cheapest option.
Reading other’s posts has edumacated (a little bit) the formerly uneducated. Ignorance fought but in my defense I did state I was uneducated on the subject and providing what I thought the table referenced.
My understanding is that Interest Rate and APR are different due to the fact that interest is applied monthly (daily?). The APR is the effective rate if you applied interest annually. {roughly speaking}
APR is higher because you are being charged interest on the interest accumulated. (Compound Interest)
Both are reported because it is probably required by law to do so. But the numbers are mathematically linked in a fixed manner so when comparing one loan to another you can safely look at just INT and Points or just APR and Points, as long as you don’t compare INT of one to APR of another.
No, this is not correct. The interest rate is the rate of interest you are paying on the principal. Through various hijinks and fees and things, the effective cost of the loan can be made much higher without adjusting the actual interest raet you pay on the principal. These sorts of devious tricks weer used pretty regularly, and still are, by a lot of loan companies, so the government passed regulations saying that loans must also quote another figure, APR, which includes the cost of all those things like points and fees, to give the customer a better way to compare the true overall cost of a loan.
Also, be aware that the truth in lending act also requires them to provide a “good faith” statement detailing the percentage rate and APR beforehand, but this document can sometimes be complete bullshit and vary substantially (like, half a point or more) between the original doc and the one you get at closing. And at the time you close, your only option is to completely walk away from the sale. Assuming you’re refinancing, you may be in a better position, but home buyer often get railroaded this way.
