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1.73% difference between rate & APR - is that a rip off?

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New Contributor

1.73% difference between rate & APR - is that a rip off?

Here's the offer:
$150,000 loan
4.75% interest rate
6.482% APR

He said the seller would pay up to $3000 for closing costs, and I would put about $6000 down.  (This would be an FHA loan, so the 3.5% requried down payment would be pretty much that $6000, so I don't believe I'm paying any points)

 

Does this seem to be an awfully big difference between the rate & APR, or is it just because I'm new to all of this?

Message 1 of 7
6 REPLIES 6
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New Contributor

Re: 1.73% difference between rate & APR - is that a rip off?

That APR probably includes mortage insurance for an FHA loan, which is 1.15% right now (might be higher? for lower scores).   MPI really adds to the cost of the loan.

Add in the closing costs (which are figured into calculating the APR even if the seller pays them), and I'm not too surprised that you're up to 6.482%

Message 2 of 7
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Established Contributor

Re: 1.73% difference between rate & APR - is that a rip off?

Seems right --- I got a par quote today.. 4.25 with final with MIP being 5.54%.

Message 3 of 7
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Valued Contributor

Re: 1.73% difference between rate & APR - is that a rip off?


@rross wrote:

Here's the offer:
$150,000 loan
4.75% interest rate
6.482% APR

He said the seller would pay up to $3000 for closing costs, and I would put about $6000 down.  (This would be an FHA loan, so the 3.5% requried down payment would be pretty much that $6000, so I don't believe I'm paying any points)

 

Does this seem to be an awfully big difference between the rate & APR, or is it just because I'm new to all of this?


Thinking 3.5% down on $150K  is about $5250, so what is reason for the other $750 towards down payment? Points? Additional money for closing fees? 

 

Not really much to worry about with APR, have your LO explain it to you. The number you are concerned with is the interest rate.

Good Luck
May all your dreams and wishes become a reality!
Message 4 of 7
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Senior Contributor

Re: 1.73% difference between rate & APR - is that a rip off?

I was told today if we were to Lock In right now (which we can't bc offer still up in the air) the rate would be 4.62%.

 

She also told me that for 1/8th of a point, I could get 1% of the purchase price taken out of closing costs (In effect, financing some of the closing).  So that rate would be 4.72% if we locked today.

 

I've never heard of that before.  (FHA)  She said it wasn't a bad deal, especially if we wanted the extra cash for moving, etc.

STARTING: 11/24/10 EQ-584 EXP-648 TU04-595
CLOSED FIRST HOME 8/19/11 EQ-630 EXP-691 TU04-653
CURRENT: EQ-701 EXP-??? TU08-720
Message 5 of 7
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Regular Contributor

Re: 1.73% difference between rate & APR - is that a rip off?

That seems like quite a spread between the note rate and the APR to me. I think you should be around 6% on the APR.

Message 6 of 7
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Regular Contributor

Re: 1.73% difference between rate & APR - is that a rip off?

Depends upon the effect to your payment, how long you plan on keeping the loan, etc.

 

The pricing difference I am seeing between 4.625% and 4.75% is about 2 points BTW.

Message 7 of 7
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