|Because a mortgage is often the largest and most complicated loan you will receive, it is important that you, the borrower, understand all of the costs and mortgage terms involved so an informed decision can be made. The term APR ( Annual Percentage Rate ) was specifically developed to help consumer understand the relative costs of a transaction. As such, it is a particularly useful factor to consider when comparing similar loans.
HERE IS SOME VERY HELPFUL INFORMATION REGARDING " APR "
HOW WAS THE APR DEVELOPED?
To help borrower understand loan transactions and to help you compare loans offered by different lenders, a federal law-- The Truth In Lending Act-- requires creditors to provide information to consumers about the conditions, terms, and costs of a loan. This law is administered under a Federal REserve Board of regulation known as Regulation Z. The APR is one of the required disclosures.
WHY IS AN APR AN IMPORTANT DISCLOSURE?
APR is a measure of the total cost of your mortgage express as a yearly interest rate. It is designed to help you determine the relative cost of a loan you are considering. The annual percentage rate is based on a rather complex mathematical formula as outlined in Regulation Z. In essence, it reflects the amount being financed, the interest rate, the timing of the payments, and any other costs ( prepaid charges ) required as a condition of the mortgage loan that make up the finance charge. The finance charge, another required disclosure under the Truth In Lending Act, reflects as a dollar amount the cost associated with the loan, including interest and other payments required of the borrower such as points, loan fees, origination fees, application fees and insurance. With fees and costs added to the mortgage loan you desire, the effective APR is often slightly higher than the actual rate of interest charged for the loan. A example is listed below:
Type of loan Fixed Rate
Initial Interest Rate 8.50%
Loan Term 30 Years
Amount of Loan $80,000
Total Prepaid Charges $3,126.89
WHAT IS THE DIFFERENCE BETWEEN THE INTEREST RATE AND THE APR?
The APR is an artificial measurement of the relative cost of your loan transaction....it doesn't have a bearing on the actual rate of interest you pay on a particular loan, but your loan rate of interest is a part of the calculation.
Comparing the APR of different mortgage loans you are considering is an important tool to help you measure the relative cost of each loan. It is not the only factor you should consider, however, before make a decision. You need to take into account other factors such as the interest rate and any fees or charges required by the lender. A lower APR on one loan doesn't necessarily ensure that it is the best mortgage loan for you.
Your best course of action is consult you loan officer. We can calculate the APR of various loan programs, and help you understand all of the costs associated with obtaining your mortgage loan. Please ask as many questions as you want.... the final decision is yours. Our goal is to help you find the right mortgage for you purchase or refinance of your home.