Interest Rate vs APR

[Ryan Butler]

Hey Everyone! In the process of buying my first house & trying to make a house hack work in the Boston area.

My question is pretty simple -- when I run analysis through the BP Calculator and I enter the Interest Rate, should I be entering actual Interest Rate or APR? I've asked my lender for his interest rate estimate a few times to keep my projections correct but when he draws up an offer letter for me the APR is around a full percentage point higher than the rate estimate he gave me, although the estimate is always in line with the actual interest rate on the offer sheet.

Obviously a full percentage point makes a huge difference in how the analysis looks. My understanding is that the APR is the actual rate I will be paying for the life of the loan and includes fees from the lender. But does the BP calculator already take into account these fees? Also, is a full percentage point higher for APR vs interest rate a normal amount or should I be looking at other lenders? (Mortgage is an FHA)

Would love to hear some thoughts on this.

Thanks!!

[Andrew Postell]

@Ryan Butler please use the interest rate in the calculator. The APR is the "cost" of your loan. So if you took all of the fees and counted them as interest, what would that look like? That's what the APR is - it's the interest rate + the fees (if the fees were interest) to give you a true comparison. Sometimes a lender might "hide" a fee (this was a big problem about 15 years ago) so the APR showed you a number that included the fees. All loans have an APR: car loans, credit cards, etc. Being a full point higher to me means that you are paying "points" somewhere. Now, I can't see everything in a setting like this but ask for a "fee worksheet" or a "loan estimate" and that will give you a breakdown of the charges to get the loan. I would certainly lean on the lender to explain all of those fees...and then rely on your instincts with their explanation. If you feel comfortable when working with them, then continue to do so. If you want to compare, then go to another lender and ask them for a breakdown too. It doesn't ALWAYS come down to the rate when working with lenders.  Especially with some of the transactions that we do as investors.  So, make sure you are working with someone that came as a referral and that usually helps some.  You can certainly read this big post on how to find good lenders HERE if you would like. Admittedly, that's more for the BRRRR method and house hacking is a lot more straight forward but some of the questions there still might help.

Anyways, hope all of that makes sense.  Thanks!