When I open a CD or look for mortage rates, they always list the interest rate and the APR and most times the numbers vary a little.|||The rate and APY vary slightly, because of compounding. If you are being paid 10% interest annually on $500, you'd earn $50, right? Only if you are paid the interest at the end of the year.
If you compound it monthly, however, you'd end up with $52.36 in interest, for an effective APY of 10.472.
They are required to disclose this stuff, so that if they are telling you 5% APY, you are really getting a 4.8% rate that with compounding gets you an effective 5.0%.|||Yes the interest rate is the rate of interest charged just on the loan amount. Your APR is the amount of interest charged on the full balance of everything (loan amount + closing costs) so it does increase the rate slightly. Not too much of a difference and honestly it will not affect the perameters of the loan a whole lot. If you have any other questions feel free to email me, I have been a loan officer for 4+ years....
sstewart@pmflenders.com
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