What is the difference between the interest rate and the annual percentage rate when dealing with mortgages?
Interest rate is the rate that quoted, say for example 6%. The APR or Annual Percentage Rate is the true rate that you are paying. Annual percentage rate takes into account any fees and is a true measure of the amount of interest you are paying annually. It’s kind of hard to explain without giving you a lesson in the principles of time value of money, with takes into account compound interest which is how a mortgage is calculated. Most people think that interest is simply for example multiplying a 100,000 mortgage by 6%, and that the amount of interest you would pay in one year. In most cases interest is calculated on a daily basis, which means you take that 6% and divide it by 365 and you get your daily interest rate. When you divide it out you roughly get .0001643 which you multiply to the balance on your mortgage. So for the first day on a 100,000 mortgage you are adding about 16.43 worth of interest. The next day you take that same daily interest rate and multiple it to the new bal
