What is the difference between the 2 rates given to...

[Isabella]

...you when applying for a mortgage? I apply online and I am offered something called: Rate 5.875% and APR (Annual Percentage Rate) 7.034% which one is "the one" or how they work. How can I calculate my monthly payment, taking into account the first one or the second one? Thank you for your help.

[pyz01]

Be careful here - it is a requirement to give you both of these rates for the following reasons:The rate is the real rate of your loan. While it look wonderful, the APR rate is the effective interest rate for the first year based upon the additional pre-paid points you are paying. Closing costs include some lender fees and other items. The lender fees are free pre-paid interest to the lender. They are tacked onto the closing and that is why the APR is so high for the first year. If this is what you truly want, then what you are actually doing is called "buying" down your rate. In other words, you are paying pre-paid up front additional fees to get a lower interest rate over the course of the whole loan. Make sure you check out both rates when you shop for mortgages and get the one that gives the best of both. PS -- Your monthly payment will be based upon the 5.875 interest rate + any escrow if you let them do escrow + any PMI if you have that as well. Good luck.