Lizy Hoeffer

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The difference between APR and Interest Rate


Why is my “annual percentage rate” (aka APR) higher than my interest rate?⁣⁣⁣
This is a frequent question I get asked during the mortgage process, and the answer to this is rather confusing! ⁣⁣⁣
The confusion starts with the name Annual Percentage Rate… it implies that this is the “interest” percentage that you pay annually for your house, your car, your boat, (your fill in the blank if it’s financed)… ⁣⁣⁣
While that is true to some extent, it does not explain that your APR includes way more than just interest. It includes ANY fees associated with obtaining financing. Which is why your APR is typically higher than your “locked in rate”!⁣⁣⁣
I break this down in more detail along with why financial gurus emphasize knowing this figure on today’s Money Tip! ⁣⁣⁣
I would love to answer your finance questions! Let me know below if there is a topic you want us to break down in a future MTM! ⁣⁣

Thank you for tuning in!!!