Mortgage Rates and APR

The mortgage rates shown on this website are for information purposes ONLY, are not guaranteed in any way and subject to change. 

Here are definitions for both Interest Rate and APR from Wikipedia:
Interest Rate – “is the rate at which interest is paid by a borrower for the use of money that they borrower from a lender.”
APR – “is a finance charge expressed as an annual rate.”  In simple terms, it’s the cost of your credit expressed as an annual rate.
The Annual Percentage Rate (APR) will usually be higher than your note rate, which is your interest rate. This because the APR includes some fees which are calculated into the actual rate. The problem with this is that many people tell you to use the APR as a comparison tool when shopping with other lenders, but not every lender calculates APR the same way. Every lender by law, is REQUIRED to send you a Truth in Lending disclosure which shows you the APR.
Keep in mind, your note rate (interest rate) is what is used to calculate your monthly mortgage payment, not the APR rate.
Comparing one lender’s APR with another be misleading or incorrect because some lenders can leave some fees out that aren’t mandatory. The rules are not clearly defined which makes finding the best lender very confusing.
These fees are generally included:
  • Points – both Origination and Discount
  • Underwriting, loan processing, and document prep fees
  • Commitment fee
  • Attorney and or title closing fees
  • PMI (Private Mortgage Insurance) or MIP for FHA (Mortgage Insurance Premium)
  • Prepaid interest – Interest that is paid from the time that you close to the end of the month. The problem here is that some lenders put 1 day or 5 days down on your good faith estimate. Even if they don’t know your closing date.
These fees are sometimes included :
  • Application fee
  • Tax related service fee
These fees are generally not included :
  • Appraisal fee
  • Credit report fee
  • Title fee
  • Recording fees

Conclusion :

Tthe overall function of the APR is supposed to measure the ‘true cost’ of the loan. Its "SUPPOSE TO" create fairness and a level playing field amongst other lenders, but this can be decptive since not all lenders include the same fees. So the best advice when comparing lenders would be to compare all the information from the Truth and Lending Statement. Also consider the APR is based on the length of the Mortgage. If you are applying for a 30 year mortgage, the average person moves out of their house in 6.7 years and/or may refinance their mortgage in 4 to 7 years.


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