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

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.


Fixed vs. variable interest rates
Fixed-rate home equity loans
Some 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 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.