Are you one of the millions of people in the world who are wishing to lower their monthly bills by seeking the lowest refinance rates for their mortgage loan? If yes, then look at the present conditions that affect the interest rates and prepare yourself for the refinance process to obtain the best loan. But, every borrower has a different situation, which is why you need to weigh the benefits and costs of associated with it.
If you think that interest rates and annual percentage rates (APR) are just results of different method of calculations but still one and the same, then you are wrong. Here’s to help you understand the difference between these two financial terms.
Basic Mortgage Interest Rates
Interest rate is a percentage figure that functions as the basic borrowing amount on the borrowed principal funds. To put it simply, it is the rent payment of the borrower to the lender as a way to compensate for the opportunity cost. Interest rates are usually factored in when doing a comparison among several loans, as they affect the monthly payments of the debtor.
While low interest rates are what most people want when looking for good loan deals, such rates are not the only expense that goes to the loans every month. There is often a balance between interest rates and other costs, for example, lower the interest rates and higher associated fees, or vice versa. Sometimes, going for a deal with low interest rate is not the most suitable option.
Annual Percentage Rate
APR represents the exact cost of the loan. While the interest rate is the borrowing cost that is computed as a percentage of the total loan, the APR incorporates all the other associated loan expenses that are often not seen in the actual rates of interest. Basically, it is another illustration of the interest rate that the borrower is responsible for, making it higher than the standard interest rate.
In theory, all fees that are necessary to finance the loan are included in the APR calculation. However, not all lenders include all fees and even those with the same terms and conditions do not have the same rate. In either case, the calculation computes all the expenses incorporated and then amortized throughout the entire time period of the loan. The result of the calculation of new rate with all the additional expenses in the interest rate computation gives you the Annual Percentage Rate.
Finding the Lowest Refinance Rates
It pays to know about the subject matter, hence conduct some research first. It can be a challenge to find the lowest refinance rates, but you can do some things to help you with the process. Your credit history is one of the main factors to get you a low interest rate. Get in touch with at least one of the major bureaus (Equifax, Experian, and TransUnion) to obtain information about your credit report. You may also get it for free in case you have been recently denied in your financing application. When you get the report in your hands, review it thoroughly and check out any information that is incorrect, or outstanding debts that you have already paid. If your old debts, you should pay them off. Doing them will have a positive impact on your credit score.
Make sure you have some understanding on the latest refinance rates within your locality before contacting a mortgage company for refinancing. It is easy to find such information on the internet. Knowing what the highest and lowest rates in the market gives you a high possibility to acquire the best deal. Just remember that the best rates are made available to people who have the lowest ratios of debt-to-income and have the most home equity.
Refinance has similar process as the application for mortgage. In that case, you will need to present the same documents such as checking account statements, savings account statements, investment statements, past tax returns, proof of income, and debt obligations per month. Secure all the required paperwork before going to the lender to apply for a new loan. When refinance rates are at their lowest levels, this may be the perfect time to refinance. If you want to know were mortgage rates might be going, look at RateTake mortgage rate predictions table.