What is a mortgage rate and what does it mean by 2.93% apr?

What is a mortgage rate and apr. I took that2.93% just as an example.

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• 7 years ago

A mortgage is a loan for house, and a mortgage rate is the interest rate on that loan. Banks charge interest when lending money, based on stated rate.

The 2.93% mortgage rate for your example, means the bank charges interest on the balance of the loan due at a rate of 2.93% annually. APR stands for annual percentage rate.

So as an example, let's say a home owner borrowed \$100,000 using a mortgage to purchase a home, with the first payment due 1 month after closing. The payment for \$100k loan for 30 years at 2.93% would be \$417.84. Each payment includes both interest, and an amount that reduces the principle balance (i.e. the \$100k borrowed). Over time, more of the monthly payment goes towards priniciple, and less towards interest. Let's calculate how the first two payments would look like.

The formula looks like this:

Balance x (APR / 12) = interest

Payment - interest = amount applied to principle.

You divide the APR by 12 as that is an annual rate, but you are only calculating the interest for one month. So....

\$100,000 x (2.93% / 12) = interest

\$100,000 x .00244 = \$244.17

\$417.84 total payment - \$244.17 interest = \$173.67 applied to principle.

After reducing the principle balance of \$100,000 by the \$173.67, the new balance is \$99,826.33

So now the second payment would look like this:

\$99,826.33 x .00244 = \$243.74

\$417.84 total payment - \$243.74 interest = \$174.10

See how the interest went down, and the amount reducing the principle went up? That trend will continue for the life of the loan.

• 7 years ago

A mortgage rate is the amount of interest you would pay on the mortgage loan amount, per year.

APR means annual percentage rate.

Source(s): Knowledge.
• Bill
Lv 7
7 years ago

APR is annual % rate BUT

APY (example) - is the yield when it is compounded

= (1 + r/n)^n - 1

= (1 + 0.073/365)^365 - 1

= 0.07572268515731784...