What is a home loan exactly? To put it in layman's terms it's a secured loan from a financial institution to you. In return, you pay interest on the amount loaned. The bottom line is that the mortgage lender gets first dibs on your property in case you default on the loan.
A Home Mortgage Loan has 3 facets:
- Loan Amount (how many dollars you need to borrow)
- Interest Rate (the percentage rate you pay on the loan)
- Term (how long it will take to pay off the loan)
The Calculation of APR (Annual Percentage Rate)
The annual percentage rate is a method developed under federal law to disclose to loan applicants the actual amount of interest that will be paid on a given loan, over the life of that loan. It makes it easy to compare one mortgage to another by making it an apples-to-apples comparison. You should, however, use the APR as just one tool in evaluating a loan, not as the sole factor in making your decision.
To understand APR, you must first understand the concept of points. A point is 1% of the loan amount. If the loan is for $100,000, one point is $1,000.
Read the rest of the Fool Home Finance Article.