Current Mortgage Rates and APR

As you probably know, getting to the lowest mortgage rates from current mortgage rates is not the same as finding the best mortgage rate available.

There’s a thing called APR (Annual Percentage Rate).  It’s not the effective mortgage interest rate people pay.  Rather, it’s a way to show you the cost of the mortgage.  In other words, APR doesn’t affect your monthly payments.

Let’s say the current mortgage rates are from two lenders are 5.25% and 5.5% and the APR’s are 5.37% and $5.67%, respectively. That means that getting the mortgage costs you 0.12% in the first case, 0.03% in the second.

Current Mortgage Rates And APR Example

Staying with the above current mortgage rates and APR example, if you get a $100,000 mortgage loan, your mortgage loan costs you $1,200 in the first case, $3,000 in the second.

APR’s are a confusing thing, though.  Mortgage brokers give you an estimate, but they won’t know all the costs upfront.  So, the mortgage broker that gives you an APR of 5.37% might end up being more expensive than the one that gave you an APR of 5.47%.
Maybe they have to change lenders, maybe the title company raises its prices.  Maybe the property you’re buying is unusual and the appraisal is going to cost more than usual.

Then there’s the fact that there’s no set way to calculate the APR.  For instance, when they calculate APR, among other things, lenders include costs that are pro-rated.  Well, some do and some do not and not all of them pro-rate over the same number of days.  Yes, different APRs from the same current mortgage rates!

So when you look at the current mortgage rates, you have to take into account the APR. But don’t be surprised if it ends up being higher than estimated.  However, it should not be too much higher.

Current Mortgage Rates And The Real Cost

Keep in mind that the higher the loan, the smaller the difference between APR’s and current mortgage rates is.  Also, the shorter the loan term, the higher the difference between APR’s and current mortgage rates.

For that reason, ask for all the fees you’re going to have to pay in dollars.  Also ask for it in dollars because 0.012% vs. 0.035% may seem smaller to you than the same difference expressed in dollars.

Then there’s the fact that the current mortgage rates and the mortgage rate YOU are going to get are not the same. Except for people with stellar credit reports and large down payments.

If you plan to own the property for a long time, you can add another wrinkle: you can buy down the mortgage.  This gets you a lower mortgage interest rate, saves you money over a long period of time.  That is useful no matter how high or low the current mortgage rates when you get your mortgage.

A word about using a mortgage payment calculator. It’s as good as the user. If you don’t fully understand the calculations, low current mortgage rates don’t do you any good.

You can research the best current mortgage rates yourself.  Or you can have a mortgage broker or two do it for you.  When current mortgage rates are likely to stay the same or go lower, using mortgage brokers is not that important.  When current mortgage rates are likely to go up, it’s a great idea to use them.

In other words, your job is not done with looking at the current mortgage rates and finding the lender with the lowest one.