APR Stands For Annual Percentage Rate

Category: Finance.

Home equity interest rates can be confusing for some people.

With the current housing market mess, it is wise to understand how these interest rates work and how much they will cost you during the life of your loan. In fact, if the wrong type of loan is taken out, homeowners can easily find themselves in financial trouble. The good news is that interest rates are a very helpful tool when homeowners are shopping for equity loans. APR stands for Annual Percentage Rate. Of the many terms that are associated with home loans, APR is one of the most important. It should be understood that you cannot compare the APR between an equity line of credit and a home loan. Homeowners should also understand that an introductory rate is often used by lenders to get new business.

These are two different types of loans and they behave differently. If your loan has an introductory rate make sure you understand what the true rate will be once the first phase or introductory phase is over. The interest rate for home equity loans does not correctly tell you the true cost of the loan because it does not account for added costs such as points and fees. There is a difference between the standard interest rate and the annual percentage rate. The APR is far more helpful when you are comparing two home loans because it accurately reflects the cost of credit expressed as a yearly rate. When you are trying to compare APR s between different loans, make sure that the terms and conditions of the loans are the same. It will also include the interest rate and all fees and points that must be paid.

Differences in the terms and conditions will affect the APR. Another confusing aspect of home loans is the difference between equity loans and lines of credit. As an example, if one of the loans that you are looking at has a longer payment term, and some type, a balloon payment of pre- payment penalty, it is not meaningful to compare its APR to another home equity loan that does not have those conditions. Consumers will do well to compare APR s on home equity loans, but they should understand that they cannot compare this to lines of credit loans. In other words, the fees in a line of credit are not factored into the APR. This is because the annual percentage rate for an equity loan takes into account the interest rate and all fees paid within the loan, while the APR for an equity line of credit only takes into account the interest rate. To avoid confusion, consumers should only compare like to like.

As mentioned above, home equity lines of credit may offer an introductory interest rate to get your attention. The APR of a home credit line loan should only be compared to the APR of another home line of credit that contains similar terms. These introductory rates are also called discounted rates or teaser rates. In some cases, the added interest can be significant, in which case you may want to continue shopping. It is important to know in advance how long the rate will apply and how much additional interest you will have to pay once it is over.

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