Why San Diego Home Buyers Must Pay Attention to APR and the Interest Rate

When getting a mortgage it is best to shop around for the best lender.  This is going to be a different experience for every San Diego home buyer.  Even so, the two aspects of a loan to pay attention to when shopping for a lender are the APR and interest rate being offered.  These are two different metrics and should both be considered before applying a mortgage.

The Interest Rate

An interest rate is what is added to the loan daily throughout the duration of the loan.  This amount is represented as a percentage and is separate from any other fees that will be paid on the loan.  The interest rate will be calculated daily in correlation to what is still owed on the mortgage.

Monthly payments will go towards the principal of the loan which is what has been borrowed, plus the interest that has been added on for that month.  The lender will have a system to calculate the principal and interest of the loan to determine monthly payments.

How Interest Rates Differ San Diego Buyer to Buyer

An interest rate is not the same for every San Diego buyer that goes to a certain lender.  There are many factors that can change what a buyer has for an interest rate on their mortgage.  Some of these factors are specific to the buyer, some to the San Diego home and others to how the loan is structured.

A San Diego buyer’s credit score will change what their interest rate is.  The better the credit score the better the interest rate can be.  A poor credit score will result in a higher interest rate because the lender is taking a chance on a buyer who does not have a stellar credit history.  

Having a large down payment will greatly help to decrease an interest rate.  Lenders love to see higher down payments because it helps to prove that the borrower is capable of saving money and making payments.  They will often offer a lower interest rate for those that can put at least twenty percent down.

The San Diego house itself is also taken into consideration.  More accurately, the location of the home is important in determining the interest rate.  The housing market in that area will determine if interest rates are increasing or decreasing with the fluctuations on the market.

There are different types of loans that will offer different interest rates.  Many San Diego buyers will get a conventional mortgage.  These mortgages are for those that have a strong credit score, consistent income and other assets that they have already purchased.  At the same time, there are also loans available for those that are just starting out with low credit and fluctuating income.  

How long a San Diego buyer secures the mortgage for will increase or decrease the interest rate.  A longer loan will have a higher interest rate but a lower monthly payment.  Shorter loans will have lower interest rates but larger payments each month.

Finally, there are different interest rates.  Many San Diego buyers choose a fixed-rate mortgage.  This mortgage will have one set interest rate for the duration of the loan.  

Another option is an adjustable-rate mortgage.  This option will have a set amount of time the interest rate will stay the same and once this period is over, the rate may change yearly.

APR

APR is a combination of the interest rate of the loan with the other costs of getting the mortgage.  It is what will be paid to have the mortgage translated into a percentage.  This value will help a San Diego buyer see what they pay yearly on their loan for the duration of the mortgage.

The APR on a mortgage is going to be higher than the interest rate.  It is the cumulative value of the interest rate, fees and costs of getting the mortgage.  A higher APR can indicate that the monthly payments will be higher month to month.

Many first-time San Diego home buyers make the mistake of only looking at the interest rate or APR on a loan.  They fail to realize that both of these values play a huge factor in how much is being paid for the life of the loan.  Comparing different lenders can save a San Diego buyer money but they must know to look past just the interest rate.