Browsing the real-estate ads the other day, I came across a mortgage chart for local banks. Points I could understand, as well as APR - the first is the lender’s fee expressed as a percentage of the loan, and the second is the amount of interest accrued on the loan annually. But what’s the mortgage (or “note”) rate? And how does it affect mortgage payments, if at all?
IIRC, the “note rate” is the stated annual interest rate, while the APR is the actual interest rate including any compounding. Because of compounding, the APR will usually be higher, and U.S. law requires that lenders state the APR.
The APR on a loan is the total annual cost of the loan, and includes the note rate, points, compounding, and possibly some other costs.
The note rate is the simple interest rate, usually expressed annually, but with no accounting for compounding. It’s the major component of the APR.
Points are not lender’s fees; they are up-front payments that result in a lower interest rate. They are tax-deductible, like interest.
Tax-deductible is good; but points were described as “fees due the lender” in the chart. I caught the correlation between higher points and lower interest rates right off.
What is the compounding of which you speak?
What, on a loan, gets compounded? Interest does not. If you fail to make your $1,000 payment, of which $900 is interest, you don’t owe interest on that interest.
Are there fees for processing fees?