Interest Rate vs. APR (And Other Mortgage Questions)

The mortgage process is complicated, but we\'ve got you covered. Here are a few answers to some commonly asked questions.

Let’s face it: The mortgage process is pretty complicated. Even if you’ve gone through it before, it’s easy to get tripped up with all the steps, documentation, and financial jargon of it all.

Are you planning on applying for a mortgage soon? Want to make sure you’re prepared for the process? Before diving straight in, here are some answers to commonly asked mortgage questions.

What’s the difference between an interest rate and APR?

A red block and a small house model balancing on a small seesaw.

The big difference when talking about APR vs. an interest rate is that one includes fees and one doesn’t.

Let’s break it down:

  • Interest rate: This is how much you’ll pay—as a percentage of your loan balance—to borrow the money. This rate can be fixed or variable.
  • APR: Or annual percentage rate, is the yearly cost of your loan. It includes interest, fees, discount points, and more.

When comparing loan estimates from lenders, you’ll want to look at both of these numbers to gauge which option is more affordable.

What does it mean when a loan is fixed-rate or adjustable-rate?

Exterior view of a new house in North America during the summer.

Fixed-rate or adjustable-rate—sometimes called variable-rate—refers to the loan’s interest rate. With a fixed-rate loan, your interest rate is set for the entire loan term (often 30 years). If your loan has an adjustable rate, then your initial interest rate only lasts a set number of years (usually three, five, seven, or ten). After that, the rate goes up or down depending on the market index it’s tied to.

Adjustable-rate loans are riskier than fixed-rate ones since your rate can rise, sending your monthly payments up with it. As a result of this added risk, adjustable loans typically have lower rates than fixed ones do—at least initially.

What are closing costs?

A hand holding a wooden house model on top of a stack of cash.

Closing costs are the fees you’ll pay to close on your mortgage loan. They include things like your lender’s origination and application fees, charges for a credit check, attorney’s fees, the costs of a title search and title policy, and dozens of other line items.

The cost of each fee and charge varies widely and depends on your lender, your loan amount, when you’re buying the home, and a number of other factors. According to Freddie Mac, you can generally expect to pay 2-5% of your loan amount in closing costs. Your lender should give you a loan estimate detailing your expected closing costs when you initially apply for your mortgage.

How much do I need for a down payment?

Exterior view of a single-family house with an attached garage.

Despite what you might’ve heard, you don’t need a 20% down payment to buy a home.

How much do you need then? The short answer: It really depends on your mortgage loan. With a conventional mortgage, you can pay as little as 3%, and with an FHA loan, the minimum is 3.5% (as long as your credit score is over 580). USDA and VA loans actually require no down payment at all.

Keep in mind that while a low down payment seems nice on its face, it also means a higher loan balance, bigger monthly payments, and more in total interest costs, so make sure you budget accordingly.

What credit score do I need to get a mortgage?

A credit score app on the screen of a smart phone surrounded by office supplies.

This also varies greatly. Every loan product has a different minimum credit score threshold, and lenders can set stricter ones if they like. Generally speaking, you can expect to need at least a 500 credit score for an FHA loan, a 620 for a conventional or VA loan, and a 640 for a USDA loan.

Borrowers with higher credit scores will typically qualify for better interest rates than those on the lower end of the credit spectrum.

Is an inspection the same thing as an appraisal?

Close up of an inspector checking a house by using checklist.

No. A home inspection benefits the buyer, whereas an appraisal is for the lender’s benefit. During a home inspection, a third-party inspector will evaluate the property you’re looking to buy. They’ll make sure it’s safe, hazard-free, and up to code, and they’ll give you a report detailing their findings. You can then use that information to negotiate repairs with the seller (or repair credits, if they’re unwilling).

An appraisal, on the other hand, is ordered by your mortgage lender to confirm the home is worth the money they’re loaning you. The appraiser will use local sales data, as well as a physical evaluation of the home, to determine the property’s current market value.

If it comes out equal to or more than what you offered for the home, your sale will proceed forward. If the appraised value is lower than your offer, you’ll need to negotiate with the seller or make up the difference out of pocket. Your lender will only let you borrow up to the appraised value of the property.

Can you spot the $207,744 difference between these identical homes?

Financing is the difference!

Get the details in The 62+ Loan™ Homebuyers Guide.

55places Mortgage is a joint venture between Mutual of Omaha Mortgage and 55places.com.
Details here.

Share this post:

We're here to help! (800) 928-2055

Call us to speak with a customer service representative.

Subscribe to Our Newsletter

Get Weekly Updates

I agree that 55places and its affiliates, partner providers or agents may call, text, or email me about my inquiry, which may be made with automated means. I understand that my consent is not a prerequisite for buying a property. I may revoke my consent at any time by contacting optout@55places.com. Message/data rates may apply. I also agree to 55places.com’s Privacy Policy and Terms of Use.

The Best Places to Snowbird in 2021

We’ve gathered 25 of the best places for snowbirds, including cities in Florida, Arizona, California, Texas, South Carolina, and Nevada. For each entry, we’ve also provided a list of recommended 55+ communities in the area. If you’re ready to find your own winter retreat this season, here are some of the best places to consider.

A 55+ adult woman plays pickleball outside.

Tennis vs. Pickleball: What’s Your Net Game?

Tennis has long been a favorite pastime for many adults, and pickleball is growing in popularity. What is the difference between these two sports, and how do you pick the right one for you? Here’s the breakdown to help you choose which is right for you.

A 55+ couple relaxing in lounge chairs on the beach.

25 Cheap Active Adult Communities for an Affordable Retirement

From scenic locations to impressive amenities, these communities provide a range of opportunities for active adults to enjoy their golden years while staying within their budget. Let’s explore 25 active adult communities that offer an affordable retirement experience.

Two 55+ active adults relaxing in lounge chairs by the beach.

How to Decide Which State to Retire In

It’s common for active adults to relocate to a new state for retirement, and with thousands of 55+ communities across the country, it’s difficult to find the perfect place without narrowing the search first by state. The best guideline is to move to a state that can provide the lifestyle you’re looking for.

An asthmatic 55+ woman reaching for an inhaler.

The Best Places to Retire If You Have Asthma

Climate, geography, and access to health care providers are all key considerations for those with a chronic health condition. Let’s explore some of the best places to retire if you have asthma and what factors may be particularly important to you in a retirement destination.

Happy senior couple relaxes while fishing together by the lake in their 55+ community.

55+ Communities for Lake Lovers: Discover the Top 5 Destinations

Boating, fishing, swimming, and other water sports are popular pastimes for many active adults. While these activities are frequently found in coastal areas, water-loving retirees can enjoy living inland when they choose a community that offers access to a lake!

About 55places

We’re changing the way people 55 and older are searching for their perfect next place. With a national network of hand-selected real estate experts, plus comprehensive information, unbiased content, and on-the-go insight about thousands of communities across the country, we’re a trusted resource paving the way from here to home. Whether you’re interested in a low-maintenance single-level residence, an active lifestyle or age-qualified community, an intimate enclave, or anything in between, we can help you make your next move the best one yet.

Scroll to Top