Colorado Mortgage Rates | Mortgage Loans In Colorado

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What is the difference between Rate and APR?

Interest Rate refers to your actual note rate. In other words, the interest rate at which you pay back your Colorado Mortgage. Your payment is determined from the interest rate and not the APR.

APR refers to the yield the lender expects to make over the life of your Colorado Mortgage loan. Your APR will always be higher than your actual interest rate. It includes not only the actual interest rate (note rate), but it also takes into consideration the closing costs you incurred at loan closing. These closing costs could have been paid out of pocket by you, or they may have been rolled into the new loan balance, or if you acquired a "no closing cost" loan, these costs were built into the interest rate.

By law, Colorado Mortgage Lenders must advertise APR when advertising a specific interest rate. It is also required that both be of equal font size.

Because your APR includes closing costs, it is intended to help the borrower compare the overall cost of one loan program to another. If you compare 2 identical Colorado Mortgage loans from two different lenders, and the rates are identical but the APR's are different, the one with the lower APR should be costing you less than the one with the higher APR.

However, not everyone calculates APR correctly, so in some cases, this can be misleading. There are set rules that dictate what fees (such as points, appraisal fees, underwriting fees, etc.) should be included in the APR and what fees should not be included in the APR. But not everyone follows these rules properly when quoting interest rates.

Because some Colorado Mortgage brokers may calculate APR's incorrectly, you can't always rely on it to determine which is the better deal. Sometimes you have to look directly at the actual closing costs to see which is truly the better option.

Closing costs are not the only factor that affects your APR. If the Colorado Mortgage loan program you are considering is an ARM for instance, the APR is nearly impossible to calculate accurately. The reason for this is simple. Your ARM is scheduled to adjust at certain intervals. At the time your loan is scheduled to adjust your loan servicer will look at the index your loan is tied to and calculate your new interest rate based on the current index (and margin). No one has any way of knowing with absolute certainty where that index will be on any given day. Indexes change daily, and can go up or down, depending on market conditions.

Therefore, your APR is usually calculated based upon the worst case scenario. For instance, most adjustable rate mortgages will have interest rate caps that your Colorado Mortgage rate cannot exceed at various intervals. Your APR will be calculated using these caps. If your loan never reaches these caps, then your APR will be inaccurate.

So, if you have two adjustable rate mortgages, both with the same interest rate, but they have different APR's, which one is better? If you only look at the APR, you may conclude that the lower the APR the better the deal. However if one loan has lower closing costs, but higher lifetime caps, it will have a higher APR. If you only intend on staying in the loan during the fixed rate period (you plan on getting out before the loan adjusts) then the loan with the lower closing costs, but higher APR, may actually be the better deal for you.

Judging a loan by it's APR is not a fool proof method to determine the best loan product to meet your Colorado Mortgage needs. When in doubt, ask one of our professionals. We are committed to helping our customers find the best loan program for each and every unique circumstance.

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