How is APR Calculated in a Home Loan?

APR is a short way of saying Annual Percentage Rate. The APR is the cost of a loan, expressed as a yearly interest rate. The APR is usually greater than the interest rate of the home loan because it includes closing costs, points, mortgage insurance and other fees associated with the loan. The government has made it a law that you must be informed of your APR three days after you apply for the loan. When you purchase a vehicle, apply for a credit card, or borrow money from a bank, all of the money lent must be paid back plus the interest rate amount. Like the economy, the Average Percentage Rate on your home fluctuates and is constantly changing. Depending on your credit history, your credit score has a lot to do with how good or bad of an APR you will receive when you purchase a new home. Your credit score says a lot to a bank, it is basically telling them how much risk is going to be involved if they lend you money. The best way to calculate this is to first figure out what your credit score is. You can do this online for free by going to (annualcreditreport.com) and it will give you a estimate on how your credit is to see if you can get that home loan you have always wanted. APR is one way to compare loan programs offered by different lenders. It is calculated by using a standard formula:

1. Add closing costs to the loan amount to get an adjusted balance
2. Find the monthly payment on the adjusted balance
3. Using the original loan amount, determine the interest rate that would result in the monthly payment found in step 2.

There are a few other factors you should be aware of as well when calculating your home loan. Be sure to know that along with the APR such things as points may be added on to the home loan. One point is one percent of the actual loan balance. It is important to know about "points" because if you don't they might not seem like much, but in all actuality 1% of you mortgages can be a lot of money and if there are a couple of points it will add up. Purchasing a home can be a major choice one has to make in their lives. It is actually the biggest investment one might make. It is always a good idea to know as much as one can before getting caught up in home loan that might hurt them or help them. Knowing such things as a loans APR is going to help you understand what the loan costs and what your money is going to. Why pay extra or not know what your money is going to when you could have learned the basics in the first place.