When financing rental properties, there is no shortage of banks, mortgage companies and investment capital businesses that will be more than happy to finance your next acquisition. It does pay to shop around for the best deal, even if you do have an established relationship at your bank. Banks have specific reserve requirements based upon the amount of loans outstanding and once a bank reaches a certain level it’s sometimes prudent to raise lending rates to slow the pace of loans while the bank replenishes necessary cash reserves. That means even the bank where you’ve been for years can suddenly be less competitive than they were just a week ago. And for long term holds and monthly cash flow, you want the best financing terms available keeping your mortgage payments in check. But with so many different loan programs, how do you find out which is best for you? If you pay attention to the annual percentage rate, or APR in the proper manner it can help identify the lowest cost financing option for you.

The APR is expressed as a percentage and reflects the cost of money borrowed expressed as an annual rate. The APR takes into consideration the actual rate on the note but also additional fees required by the bank to pay for third party services and internal costs associated with approving a loan request. The lower the APR, the fewer fees that are charged. When two banks both offer a 25 year fixed rate on a duplex at 4.25%, if the APR from one bank is 4.35% and the other bank at 4.29%, the bank offering the 4.29% has lower fees compared to the first bank and is your best choice, all things being equal. But that is where the APR can sometimes be mishandled.

Comparing APRs on different types of loans doesn’t always work out very well. For instance, a rate for a 10 year loan will be lower than one for a 30 year note but the monthly payments will be higher for the shorter term. Even if the fees are exactly alike, changing loan terms will affect the APR. A shorter loan term can have a higher APR compared with a longer term note. The APR provides a quick look at a loan offering and can be an effective tool, just make sure you are comparing the exact type of mortgage.