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# What You Should Know About Interest Rates

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