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What Factors Determine The Annual Percentage Rate For A Mortgage Rate?

By Bob Redtree

When looking to purchase a new home, one of the most important aspects of the entire process is getting the best overall mortgage rate.  While many people believe that selecting the mortgage with the lowest rate will be the best option, choosing the mortgage with lowest annual percentage rate (APR) is actually the best.  There are several factors that go into determining the APR rate on a mortgage.

Mortgage Interest Rate

The mortgage interest rate is the first factor that determines the annual percentage rate for a mortgage rate.  The mortgage interest rate is the rate that is used to determine the interest rate you pay each month.  This is normally the largest factor in the overall annual percentage rate, so finding a mortgage rate with a low interest rate is quite important.

Fees

The fees you pay on the mortgage is the third factor that determines the annual percentage rate for a mortgage rate.  When choosing between mortgages, most mortgage rates you receive will have a similar interest rate.  The big difference between mortgage offers is the fees that you will be charged.  Since fees are included in the annual percentage rate, it makes using the APR a good tool for comparing mortgages.

Amortization Period

The amortization period is the third factor that determines the annual percentage rate for a mortgage rate.  The annual percentage rate is what the total rate would be if the loan is kept for the entire term.  Therefore, if you select a loan with a shorter amortization period, but pay the same amount of fees, you will pay the fees off in a shorter period of time and will have a higher annual percentage rate.

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3. What Factors Are Used To Determine My Mortgage Rate?
4. Are The Lowest Mortgage Rates Really The Best Mortgages?
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