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The annual
percentage rate (APR) is an interest rate that is different
from the note rate or payment rate. It is commonly used to
compare loan programs from different lenders. The Federal
Truth in Lending law requires mortgage companies to disclose
the APR when they advertise a rate. The APR does not affect
your monthly payments.
-
The APR
was designed to help consumers shop and compare the loan costs
from different lenders, unfortunately, different lenders calculate
APRs differently. So a loan with a lower APR is not necessarily
a better rate. The best way to compare loans is to ask lenders
to provide you with a good-faith estimate and then compare
the costs, line by line.
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The following
fees are generally included in the APR:
-
Points
- both discount points and origination points
-
Pre-paid
interest. The interest paid from the date the loan closes
to the end of the month. Most mortgage companies assume 15
days of interest in their calculations.
-
Loan-processing
fee
-
Underwriting
fee
-
Document-preparation
fee
-
Private
mortgage-insurance
-
The following
fees are normally not included in the APR:
-
Title
or abstract fee
-
Escrow
fee
-
Notary
fee
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Document
preparation (charged by the closing agent)
-
Home-inspection
fees
-
Recording
fee
-
Transfer
taxes
-
Credit
report
-
Appraisal
fee
-
Calculating
APRs on adjustable loans is even more complex because future
rates are unknown. Do not attempt to compare a 30-year loan
with a 15-year loan using their respective APRs. A 15-year
loan may have a lower interest rate, but could have a higher
APR, since the loan fees are amortized over a shorter period
of time.
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Conclusion:
Get a Good Faith Estimate.
