The American dream may no longer include homeownership for many millennials, but there are still plenty of people out there willing to drop five to six figures for digs of their own. The only problem? There are also plenty of mortgage myths that cause people to lose money in the pursuit of becoming homeowners.
We talked to seven financial experts to find out what they believe are the biggest mortgage myths and what prospective homeowners need to know.
Myth 1: Interest rate and APR are the same thing.
Truth: When shopping around for a mortgage, interest rates are one of the most important factors to compare. Getting the lowest rate possible is key; even a difference of 1 percent can either save you or cost you tens of thousands of dollars over a 30-year mortgage.
But a more important measure is the annual percentage rate, or APR, said John Pak, a certified financial planner and founder of Otium Advisory Group in Los Angeles. Although the interest rate on a mortgage determines how much you’ll pay on a monthly basis based on the loan amount, “The APR is the rate that gives you clues as to what fees are included in the loan terms,” Pak said.
That’s because the APR represents the aggregated cost of doing business with the lender, according to Pak. “It includes the interest rate, discount points (if applicable), broker fees and closing costs, to name a few,” Pak said. “While the interest rate simply tells you how much your monthly payments will be, the APR is a great tool to compare overall fees charged by different lenders as you shop around for financing.”