What is an Annual Percentage Rate (APR)?
The annual percentage rate (APR) is an interest rate that is
different from the note rate. It is
commonly used to compare loan programs from different lenders. The Federal
Truth in Lending law requires that mortgage companies disclose the APR
when they advertise a rate. If life were easy, then all you would have to
do is compare APRs, pick
the lowest one and you would have the right loan. Right? Wrong!
Unfortunately,
different lenders calculate APRs differently! So a loan with a lower APR
is not necessarily a better choice. The APR is a very confusing number.
Even mortgage bankers and brokers admit it is confusing. The APR does NOT
affect your monthly payments. Your monthly payments are affected by the
interest rate and the length of the loan.
The APR was designed to measure the "true cost of a loan"
and create a level playing field for lenders. It prevents lenders from
advertising a low rate and hiding fees. It is a good idea to use the
APR as a starting point in comparing loans, but not the only criteria in
making your decision. The APR is a
result of a complex calculation and is not clearly defined. The most
effective way to compare actual loan costs is to get a good faith estimate
from each lender. Remember to
exclude those costs that are independent of the loan. We
can sit down with you to calculate your monthly payments as well as your
APR.
Landmark Mortgage
specializes in assisting individuals with obtaining home loans, whether for purchase or refinance. We can advise you on the best
approach and
help you with your specific loan requirements.
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