You’ve seen it a thousand times – but perhaps you haven’t given it much thought. What does A.P.R. stand for and what should we be aware of when it comes to these three little letters? Let’s face it, mortgage financing can be confusing, but it doesn’t have to be.
Mortgage APR or Annual Percentage Rate helps you assess the total cost of the loan in percentage terms when you are trying to calculate your mortgage interest.
If your mortgage attracts an average mortgage apr of 10%, it means that you will be required to shell out $10 for every $100 you borrow yearly. Borrowers usually try to get a mortgage loan that has the lowest APR.
Mortgage APR however doesn’t affect your monthly mortgage payments. This is because your monthly mortgage payments take into account the mortgage interest rate and not the APR.
What does mortgage APR include?
The APR includes the following in its calculations-
- Pre paid interests
- Points
- Underwriting fees
- Loan processing fees etc.
- Fees for preparing documents
- Private mortgage insurance
In addition to the above, under certain circumstances, a credit life insurance and loan application fee may be included as well.
Fees excluded from APR calculation
The mortgage APR doesn’t take into account the following types of fees in its calculation:
- Appraisal fees
- Notary fees
- Attorney fees
- Transfer taxes
- Fees from Escrow and Title
- Credit Reporting fees
- Recording fees
- Home Inspection fees etc
In other words, the mortgage APR helps you to find out the amount you have to pay as closing cost. It is mandatory as per Federal Truth in Lending Laws that the lender has to disclose the mortgage APR to the borrower.
It is important that you compare the rates from one lender to another. You can also compare the Annual Percentage Rate online.
It helps to shop around for the best deal. It is also important to remember that getting a low mortgage APR doesn’t necessarily mean that you are getting a good deal.
Check the APR and read the fine print before signing the agreement when you opt for a mortgage.
This has been a guest post from Sandy Thomason from the Mortgage Fit Community - a community where members provide personalized guidance on mortgage questions.
5 Ways to Get Fit on a Budget
Personal Loans Making a Comeback
3 Excuses People Use To Avoid Couponing
IRA Withdrawal Rules – When Can You Withdraw Your IRA?
Well Paying Careers: 30 Jobs That Pay $30 Per Hour
10 Money-Saving Tips to Help You Stash $10,000!
Should You Give Money to a Homeless Person?
7 Most Important Habits That Rich People Use to Build Wealth
{ 4 comments… read them below or add one }
Umpteen years in the mortgage business, and not one person in ten asked about APR (or even seemed to care when it was explained).
It’s a good metric for comparison sake, but most people want to know only three things:
1) What’s my rate?
2) What’s my monthly payment?
3) How much are the closing costs?
Number 3 was optional; if the seller was paying the closing costs, there wasn’t much interest in that either.
APR is mostly a regulatory requirement, and I think most people ignore it out of fear of what it doesn’t say (the three questions above, for example). It’s a bit of a foreign language to most people I’m afraid.
.-= Kevin@OutOfYourRut´s last blog ..Ten Common Sense Ways to Reduce Our Identity Footprint =-.
Jason, informative guest post here. I have to admit, I’m in the camp Kevin describes. I would typically ask for closing costs from three lenders and compare, but nevery really took into consideration the APR.
.-= Jason @ One Money Design´s last blog ..Top 10 Christmas Gift Picks for Wise Personal Money Management =-.
HaHa – thanks guys. Yeah, I agree, most people are really only concerned about the payment and rate. I thought it was an informative post – I wonder how many people wonder what an APR is, but never really ask.
.-= Jason´s last blog ..Would You Rather Be Filthy Rich or Extremely Poor? =-.
unfortunately there are to many desperate people out there. The situation for these people with poor credit or financial instability is grim. They will take what they get which is usually outrageous.
We need to tighten the leash and create more standardized lending practices!
.-= Mortgage Refinancing Reviewed´s last blog ..Bad Credit, Where Do I Go From Here? =-.