All about rates
Interest rates, loan terms, annual percentage rate
(APR) ... it can all seem confusing. But it's really just about getting the
monthly payment to fit you and your lifestyle. Let's look at how you can use
these loan features to lower your payment.
Rates, points and APR
Fixed vs. variable interest rates
Rates, points and APR
Know how interest rates affect your payment
The interest rate on a loan is used to calculate your monthly payment. The
higher the interest rate, the higher your monthly payment. The lower the
interest rate, the lower your monthly payment. Simple? Yes, but abstract until
you see it applied to your loan. See our monthly
payment calculator for a demonstration of how this works on a fixed-rate home equity loan.
Want to lower your rate and payment?
Use discount points.
Points are fees paid to the lender at closing. Each "point" is equal
to 1% of the loan amount. For a $50,000 loan, a point equals $500. Two points
would be $1000.
Qualified borrowers can buy down the rate by paying more points. If you have the cash,
it's a good way to save money on interest over the life of your loan. The option to pay points to obtain a lower rate is typically
available on a fixed-rate home equity loan, but not on a variable-rate home
equity line of credit.
Use the APR to compare loans
Fixed-rate home equity loans are compared by more than interest rates. They often involve
other costs. The APR expresses the annual cost of a loan as a percentage,
factoring in its rate and other charges over the life of the loan.
To make an accurate comparison, compare fixed-rate home equity loans with the same terms,
interest rates and points. Then look at the APR. The loan with the lower APR is
the less expensive loan.
Lenders also provide the APR along with a loan's interest rate in the
Truth in Lending Disclosure Statement. This document will be mailed
within 3 days after you submit a completed application.
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Fixed vs. variable interest rates
Fixed-rate home equity loans
Some Countrywide Home Equity Loans are fixed-rate loans. The interest rate and regular payment on a
fixed-rate loan remains the same over the life of the loan. When comparing fixed-rate loans, be sure to
use the APR. On a fixed-rate loan, the
APR includes points and other finance charges.
Variable-rate home equity
lines of credit
Some Countrywide Home Equity Lines of Credit are variable-rate loans
that allow you to pay interest only during the 5 or 10-year draw period. The interest rate is based on the prime rate
as published in the Wall Street Journal plus a margin. As the prime rate varies, so will the
interest rate charged on a home equity line of credit. The regular payment on a variable-rate loan
goes up and down with the interest rate, but interest is still calculated based
on the outstanding principal amount as of the last payment.
When comparing variable-rate lines of credit, APR is not generally used. On home equity lines of
credit, the APR is the annual interest rate; no other fees or charges are
included. So, you'll need to
compare indexes, margins, annual fees, and other terms.
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