Need to Know: Annual Percentage Rates for First-Time Buyers.

It is important that when we choose to make a serious investment that we truly understand the costs involved.  So for those first time mortgages we are going to break it down simply for you. There are numerous times of interest rates out there to choose from when in comes to repayment options.  These are often broken down into "variable" interest rates and "fixed" interest rates.  These rates will apply to all forms of financing from loans, mortgages, and remortgaging options.

The first one we shall discuss is variable interest rates.  Depeding on the company in which you recieve your loan from, the rates are calculated with a range for potential variance.  For example, if you recieve at loan at 5% interest monthly, that is not a guaranteed rate for every month during that year or term of the investment.  It will have a range of values in which it can vary between throughout a single term.  The term can be monthly, annually, bi-annual and quarterly.  Also, which an interest rate is provided to you, it is important to know the time periods in which the interest is going to be applied.  Maybe a little more than you had orginally thought was required to simply make that next home purchase?  It really is not as difficult as it seems.  You are not expected to be an expert in financing as that is your bank or other financing instituions job.  However, it is important that you have basic knowledge of the information you will be presented with so you can ask questions.

The second topic in regards to interest rates are the different types.  The is a different between simple interest and compounding interest. A simple interest rate is easily calculated by simply taking the amount owed (principal), and multiplying it by the interest rate and time period ( number of quarters, months in the year, or number of years).  That will give you the amount of interest that will be paid over the duration of your loan.  This interest type is associated with a nominal APR.  Then there is the matter of compounding interests.  This is the option that most lending providers will choose.  This simply means that everytime interest is applied to your loan, that amount will be applied to the total loan amount.  Now, when it is time to apply the next interest amount, you will be charged interest on the new principal amount which includes the last interest addition.  Just think about it as buying jelly candies.  If I charge you tax for every candy you have, then when you start with 3 candies, the initial tax will be charge on three candies.  Now that you purchased two more, your collection has risen to 5.  The next time I charge you taxes it will be on 5 candies.  Not as hard as you thought right?

Finally, a fixed APR will result in a constant percentage rate being applied to your original loan amount for the duration of your loan.  This is often chosen by those who seek consistency and prefer smaller risks that can be associated with variable interest rates.  Now that you have the basic understand of APR’s and how they can affect your loans, you have enough knowledge to at least ask questions and do not have to solely depend on your or trust your financial institution’s suggestion for "best choice for you".