What is Difference between Mortgage Rates and APR?

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Q & A with Dottie Herman

Question: Why are some mortgage rates listed as a percentage and as an APR? What's the difference and is there a benefit to one over the other?

ANSWER: Mortgage rates are typically listed in 1/8 increments (.125%, .25%, .375%) and is the rate your monthly payment is calculated on in the amortization schedule. The APR (Annual Percentage Rate) is a calculated rate that includes the rate plus the fees paid in conjunction with the rate to help consumers understand the cost of the mortgage when shopping for a loan. The borrower can determine if they are receiving a lower interest rate by paying higher fees or if a higher interest is being charged to cover some of the closing fees. A borrower is disclosed the APR through the Federal Truth-in-lending disclosure, aka 'Til'.

Question: Are there different lending requirements for a first mortgage and a mortgage on a second home?

ANSWER: Yes, Second homes, as well as investment properties, carry with it a higher degree of risk to the lender as opposed to a primary residence. Conventional ($417,000) first mortgages on a primary residence will allow for 95% LTV (loan to Value), whereas conventional loans on second homes will require a minimum of 90% LTV (10% down payment or greater). Loan amounts exceeding conventional allowances will require 20% or more down.    

Question: What is the difference between locking in a mortgage rate and floating? Pros and Cons.

ANSWER: Locking in or floating a rate depends on the borrower's tolerance for market fluctuations. The biggest pro for locking and securing at the current rate is- If a borrower is close to their maximum qualifying debt to income ratio, so as not to jeopardize their purchase should rates rise and then they no longer qualify. Cons- When rates slip lower your lender can hold you to the locked rate. Talk to your lender about renegotiation policies or float downs.
 
Question: I have lived in my house for 28 years. I have almost paid off my mortgage but I now need some cash for another project I am working on. Can I take it out of my house equity? How do I do that?

ANSWER: Cash out refinance programs are available. It is a good time now with these low current rates. Contact a mortgage bankers to discuss your options.  

Question: I recently refinanced my house. If the rates go down again can I refinance again? Is there a time frame?

ANSWER: You can refinance at any time - your mortgage banker professional will work with you to determine if there is a "benefit to the borrower."