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How are mortgage interest rates
determined?
Mortgage rates are
mostly determined by the yield on the 10yr
Treasury note. When the Fed's benchmark short-term rate was 1%, the 10-year yield was 4.69% and the average 30-year mortgage
interest rate was 6.25%.
Other factors such as housing market and
economic trends may also affect where
rates are at that time.
What is APR?
APR stand for Annual
Percentage Rate. The annual cost of a
loan to a borrower. Like an interest
rate, the APR is expressed as a
percentage of the loan amount. Unlike an
interest rate, however, it includes
other charges or fees to reflect the
total cost of the loan. The Federal
Truth in Lending Act requires that every
consumer loan agreement disclose the APR
in large, bold print. Since all lenders
must follow the same rules to ensure the
accuracy of the APR, borrowers can use
the APR as a good basis for comparing
the cost of loans. For example an auto
loan may advertise that their APR is 2%,
In reality it is 0% loan with cost added
to it.
What are Prime Interest Rates?
Prime interest rate is the rate charged by
mortgage companies to their most creditworthy customers. A less credit worthy customer may be offered a loan at the prime rate plus anywhere from 2 to 10 percent. Borrowing at below-prime also occurs, but is less common and usually applies to businesses, not individual consumers. The Federal Reserve determines whether to lower or raise the prime rate based on a variety of economic factors. Many consumer loans, such as auto, home equity, mortgage and credit card loans are based upon the prime rate. Building and maintaining a good credit history are two of the most important qualifications for prime-rate borrowing.
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