Your APR is an important component of your loan but it can lead to questions and concerns when you’re not sure how it applies to your situation.
So, let’s talk about it. APR is a way to evaluate what a loan is costing you in relation to the interest rate while factoring in associated fees.
So some of the fees that are included are going to be:
Lender fees like:
● Origination
● Discount points
● Per Diem Interest. Per diem interest refers to the interest that you pay based on the day that you close through the end of the month.
● Title Fees
● Mortgage Insurance
What’s not included in the APR are going to be pretty much everything else.
For example:
● Attorney Fees
● Taxes
● Insurance
● Credit Report
● Appraisal
The APR is important because it is a way to compare one loan structure to another structure and to compare one lender’s estimate to another lender’s estimate.
The one thing that I want to caution on is it’s not the end all be all. Meaning, sometimes the way the fees are disclosed can manipulate or skew the APR.
So, consider the APR a factor when you’re evaluating your options but don’t consider it the end-all-be-all, and be open to checking the numbers individually to get the bigger picture. Like, what are the lender fees compared to another lender’s fees.
Remember, the lender can affect the individual lender fees and the rate. The other factors such as taxes, insurance, or even the attorney’s fees really aren’t impacted by the lender that you choose.
An important thing to remember about the APR is that it’s not your interest rate as far as how your payment is calculated. You have your interest rate and your terms such as 3% at 30 years fixed.
Your APR can be slightly higher, say 3.205%, but your loan is actually based on the interest rate, not the APR rate. So if the APR is a little bit higher than the rate, particularly in the case when you have mortgage insurance that’s attached to the loan for the life of the loan, it doesn’t mean that you’re not getting a good deal, it just means that its a fee that is going to be spread out over the life of that loan.
Another point that you want to remember is that any type of loan that has finance mortgage insurance or has mortgage insurance that is going to be attached to the loan for the life of the loan such as the FHA is going to have a much higher APR. Meaning, because that mortgage insurance is a life-long fee associated with that loan, it’s going to push the APR up much higher than your actual interest rate.
Ultimately, your APR is an important factor when you’re choosing your loan and your lender. But, you may have to go a little bit deeper into the details to get the answers you’re looking for and ultimately that’s what we’re here to help you do.
Interested in learning more? You can contact me by emailing (rebecca.richardson@wyndhamcapital.com) or finding me on Instagram (@the.mortgage.mentor).