The Things You May Have Overlooked About APR on Mortgage Loans

The Things You May Have Overlooked About APR on Mortgage Loans

What is the APR on mortgage loans, you ask? To put it simply, this three-lettered acronym stands for Annual Percentage Rate. This is quite useful in determining which mortgage companies offer the best loans. The APR is a better indicator of the actual mortgage loan cost compared to the rate of interest. This is due to the fact that it gives you an estimate of the amount you need to pay in the span of one year. Furthermore, federal law mandates that mortgage companies disclose APRs, together with interest rates, to prospective clients and even to those who already have existing mortgage loans in their company.

What is it exactly?

Before we carry on further, let us first establish that the Annual Percentage Rate doesn't affect the monthly payment on mortgage loans. Your loan's a monthly loan payment is a function of the rate of interest and your term's duration. Thus, it's not affected, in any way, by the APR. As you may have noticed, APR and the concept in which it works are perplexing. It also serves to provide an estimate of how much the loan costs. It is necessary that this figure is being shared to clients as mandated by law to prevent banks and mortgage loan companies from reporting low interest rates while concealing other expenses.

How does it help?

Besides the fact that the APR prevents companies from deceiving the public, it also serves a number of functions. Since it provides an estimate of a loan's true cost, people can compare loans from different companies to be able to decide which of them provides deals that are more advantageous on the client's end. However, such a comparison is difficult to establish. This is because different companies use different names for different items. Due to this, it is not uncommon to find different lenders having different computations of APRs. Fortunately, one method may give a solution to this confusing problem. You can ask different mortgagors to provide you a rough estimate of their loan's cost on the same type of loan, meaning the same mortgage loan option and interest rate. Then, have them compute for their APRs. The lender who has a lower APR then has a cheaper loan cost compared to the other one. Use this method in order to make a rough comparison among lenders. Since the computation is not definite and standardized and the method previously mentioned works in the principle of trust and good faith, it is better to seek the expertise of a loan officer in these instances.

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