Finance
What is the difference between the interest rate and the APR on an Illinois mortgage?
AThey are identical; APR is just another term for interest rate
BThe interest rate is the cost of borrowing principal; the APR includes the interest rate plus other loan costs, expressed as a yearly rate✓ Correct
CAPR is the interest rate before taxes; the interest rate is after-tax
DThe interest rate applies to the full loan; APR applies only to the down payment
Explanation
The interest rate is the cost of borrowing the principal amount. The APR (Annual Percentage Rate) includes the interest rate plus other loan costs such as origination fees, mortgage insurance, and certain closing costs, expressed as a yearly rate.
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Key Terms to Know
Closing Costs
Fees and expenses paid by the buyer and/or seller at the closing of a real estate transaction, in addition to the property's purchase price.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Discount PointsPrepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
Private Mortgage Insurance (PMI)Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.
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