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By Paul Mulligan

You are eyeing a 15-year fixed mortgage rate of 3.125 percent. But next to the mortgage rate there is another number that says 3.17 percent annual percentage rate (APR).

So what’s the difference between the two numbers, and how does it affect you?

Your mortgage rate is the baseline interest that you can expect to pay every month if you qualify for the loan. Mortgage rates are offered in increments of eighths (for instance, a sequence would go 3 percent, 3.125 percent, 3.25 percent, 3.375 percent, etc.).

This number can vary depending on several different factors including the health of the housing market and your risk as a borrower. Your risk can include the amount of the loan you are requesting, your credit score, the purpose of the loan and the property type. Other factors could include whether the loan is full, limited or stated, as well as the loan-to-value ratio.

Your APR is what you will actually pay once you factor in all of your third-party and closing fees like loan origination fees, processing fees, underwriting and premiums. It could also contain mortgage “points,” which are percentages of the loan that the bank can request. Different rates will come with different points that you as a borrower could have to pay.

All of these fees are typically bundled into a single APR. Banks are required to disclose the APR on their loans so that consumers can compare apples to apples. So what can you do to secure the best mortgage possible?

Finding the best mortgage rate could mean saving thousands of dollars in the long run. A good place to start is to look at your bank’s standard mortgage rates to get an idea of what to expect prior to scheduling a meeting. Also, spend some time comparing mortgage lender rates, which will let you find the best deals in the region where you are looking.

Still have questions about mortgage rates and terms? Ask us. We are here to help.

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