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Interest Rate / APR

tag
Anonymous
Not applicable

Interest Rate / APR

I understand that the two rates will be slightly different and the APR will always be a bit higher due to certain costs, but on my GFE my interest rate is 5% and the APR is 6.062%, is it normal for the rates to be a point apart?

 

 

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1 REPLY 1
Lel
Moderator Emeritus

Re: Interest Rate / APR


@Anonymous wrote:

I understand that the two rates will be slightly different and the APR will always be a bit higher due to certain costs, but on my GFE my interest rate is 5% and the APR is 6.062%, is it normal for the rates to be a point apart?

 

 


There's no "normal" spread between the interest rate and the APR.  It depends on the closing costs, points, origination fees, etc associated with the loan.  If you paid a lot of points to get your interest rate down, then this will increase your APR over the stated interest rate.

 

However, if you do pay points, then your APR should be lower than the APR for a no-points loan.  For example, if you paid no points and got an interest rate of 6%, your APR might be 6.2%.  If you paid 2 points, your interest rate might be 5.25% and your APR might be 6%.  Larger spread between the interest rate and APR when you pay points, but overall the cost over the lifetime of the loan will be lower.

 

To be clear, since this sometimes comes up, your monthly payment is based on the interest rate (5%), not the APR.

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