Expert: Bobbi Buehl - 1/2/2009

Question
Hello,

When you get a mortgage is your payment calculated based on rate or apr? I notice when you look at bank rates they will have both.

If, for example, you take out a 30 year fixed $150,000 mortgage and the rate is 5.00% and the APR is %6.1%, would your payment be roughly %805 or $909? It depends on which they go on. (when I figured the payment I am of course using round figures, and did not include closing costs, etc)

Hopefully you can clear this up for me.

My loan right now is 6.3%. Rates are of course lower now and one of my local banks says their rate right now is 4.8%, and the APR if you look is $5.8%.

Thanks for any help!

Answer
Hello,

In a nut shell, Your payment is calculated on the rate you are in, not the APR. The APR rate just means, if you add closing cost to your loan (which is taking your mortgage higher than the payoff) it's like paying the high APR rate.

Example: if you pay your closing cost out of pocket, then your APR would be the same rate. If you include your cost into the loan, then your APR will be higher, but your rate will not change in reality.

Hope that helps... : )

Thanks,

Bobbi Buehl
Sr. Loan Officer