Annual Percentage Rate (APR) is a tool that consumers can use as a starting point to compare loan programs. However, it's important to keep in mind that APR is not a perfect system, and not all lenders calculate APR in the same way. While the Federal Truth-in-Lending Act does require any mortgage broker or lender to disclose APR to the consumer, there is no rule written in stone for calculating this number that each and every lender agrees upon.
The point of calculating APR is to let the consumer know what the actual cost of their financing is in the form of a yearly rate. APR factors in certain closing costs and fees associated with the loan, and spreads this total over the life of the loan along with the actual note rate. The objective is to give the consumer a clearer picture of what their actual costs are, and this inhibits lenders from hiding fees or upfront costs behind low interest rates in their advertising.
Fees that are generally included in the APR calculation are points, pre-paid interest, loan processing fees, underwriting fees, document preparation fees, and private mortgage insurance. On occasion, lenders will include a loan application fee and/or credit life insurance. Fees that are normally not included in the APR calculation are fees from Title, Escrow, attorney, notary, document preparation, home inspection, recording, transfer taxes, credit report and appraisal.
Remember, all lenders do not perform the calculation the same way. Moreover, APR does not consider the possibility of making pre-payments, moving or refinancing. Unless the interest rate is tied to a fixed instrument, APR is even more confusing. Calculating APRs on adjustable rate and balloon mortgages is more complex because we really have no way of knowing what future rates will be.
If all lenders calculated APR the same way, we could make easy comparisons when deciding on what loan program to go with. Since they don't, the consumer should know that APR is simply a starting point for comparison. They should rely on the skills of a well-versed loan professional to assist them in obtaining the loan that meets their specific needs. The more important things to consider are how long the loan is needed. What are the long-term goals of the borrower? If the home buyer only expects to stay in the home for five years, there's not a lot of sense in looking exclusively at 30-Year Fixed rates because the APR seems more reasonable. If a young couple is buying a home, knowing they will refinance in eight years to pay for their son's college education, then once again, APR is not a realistic factor to take into consideration.
The Loan Executive should be prepared to answer questions about APR once the lender provides the Truth-in-Lending.
Disclosure Statement (Reg Z), such as why the “amount financed” listed in Box C is not the same as the actual loan amount, and why the APR is higher than the interest rate on the loan in most cases. The consumer will get a clear definition about the fees associated with their loan in the good-faith estimate, but the Truth-in-Lending Disclosure is often an area that is confusing to the borrower.
646 Plank Road, Suite 102 Clifton Park, NY 12065
518.982.0480 | Office
518.982.0483 | Fax
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Servicing Florida: Bonita Springs, Bradenton, Cape Coral, Clearwater, Fort Lauderdale, Fort Myers, Miami, Naples, Orlando, Panama, Panama Beach, Port Charlotte, Punta Gorda, Sarasota, St Petersburg, St. Augustine, Tampa, Tampa Bay, Vero Beach
239.227.8505 | Florida Office
Joanne was amazing through our forever long process (or so it seemed). As first time home buyers, we had a really bad experience with another lender and Joanne blew us out of the water. She explained the step by step process and never hesitated to explain things further if we did not understand. She answered all our questions in a timely manner. Joanne was there even on weekends and late nights. My fiancé and I cannot thank Joanne enough for all she did for us! We definitely will recommend her to our friends! We also want to thank our laywer (who recommend Joanne to us!). They are a dynamic duo!!! If you think you want to work with Joanne do not hesitate, you will not be disappointed!
-G, Albany
Joanne and Krista were incredibly responsive, patient and professional! Joanne guided me throughout the entire home purchase process and responded to all my questions promptly. Joanne did an excellent job getting me the lowest rate and patiently explaining to me the process in details. I thought applying for a home loan would be stressful, however, thanks to Joanne and her team, it was incredibly smooth. I highly recommend The Mortgage Place to everyone!
-R, Halfmoon
Joanne and her team were so fantastic during our first time home buying process. They were so helpful in providing feedback to our questions and made the whole experience of obtaining our first home loan seamless. With out a doubt we will always recommend to others and look to work with them again if were are in the market.
-M, Schenectady
Joanne is the best at what she does! She was thorough and extremely patient with all our questions. She work diligently to find us the best rates and responded swiftly to all questions. I would recommend her a thousand times over to anyone and everyone!
-Chris, Schenectady
If you need a loan of any kind this is your place! Joanne has helped many of my friends and family with their finance needs over the years and has exceeded expectations on every level. Not only is she extremely knowledgeable about the market and clients personal needs but Joanne and her team give some of the best service I've seen in the business. I highly recommend Joanne and her team.
-M, Saratoga
Good morning! Having a home with space is wonderful! The kids and I are so happy and feeling much more comfortable and at ease. We spent 2 days straight moving then began unpacking Saturday night. After church yesterday we organized and unpacked some more and last night was cleaning. We were able to begin our Monday morning routine with easy and comfort - I can't begin to express how truly grateful we are. We are feeling blessed and know without a doubt that God's hand was with us from the beginning. Thank you so much for all you did. You were an anchor for me and without your direction through this process I would have been lost.
-Julie, Clifton Park