The finance industry is littered with jargon, most of it shorthand used by finance professionals, that sometimes has the unintended consequence of leading consumers astray.
When it comes to mortgages, lenders will use certain jargon that obscures the true cost of your monthly payment.
In the video segment below, Motley Fool analysts Nathan Hamilton and Kristine Harjes cut through the noise and talk about one mortgage essential homeowners may be getting wrong.
Kristine Harjes: When you’re looking into getting a mortgage, one thing you hear about a ton is the interest rate. You have your APR, and your teaser rates, and it seems like there are a lot of numbers flying around, but it is absolutely crucial that you know the definition of the various interest rates.
Nathan Hamilton: Yeah, and essentially, you’ll quickly know once you start applying for a mortgage what the teaser rate is versus what’s called an APR, which, if you look at the difference between the two, generally in marketing materials, what you’re going to see from a mortgage lender is their teaser rate, and that is the rate before fees, before cost. It’s not what you actually pay each month. Now, APR accounts for origination fees, all of the different stuff that’s rolled into your mortgage loan, and it fully represents what you’re going to be paying each month. If you look at — we have various mortgage rate tables on our website, and specifically, we highlight the APR just to be more transparent with those instead of… The interest rate is included, but the APR is front and center. It’s in bigger, bolder font, so we want to make sure that people are seeing the right rate.
Harjes: It is really important that you are considering this because the difference between the two rates can sometimes be substantial.
Hamilton: Yeah. If you look at it on our various rate tables, or some that you’ve seen online, is if you look at the examples, there’s about 3.85% teaser rate with some, versus 4.5% APR, and if you actually work out the numbers, that can mean hundreds of dollars each month in terms of your different mortgage payment.
Harjes: Right, so definitely do not get this crucial mistake wrong.
Harjes: If you’re looking for these rate tables or any other information about mortgages, check out fool.com/mortgages to get started finding a low rate, including access to highly rated lenders and also our free guide, “Five Tips to Increase Your Credit Score Over 800.”
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