subject: Get To Know About Apr [print this page] All the advertisements and announcements that quote the payment amount on a home mortgage loan, should also include another cardinal number, which is known as the annual percentage rate (APR). If you apply for a home mortgage loan, your lender is obliged to send you a good faith estimate and a truth in lending statement within three business days. This prevents the lenders from advertising low rates on the mortgage loan so as to attract more borrowers.
As per the law, the mortgage rate is also quoted along with the APR. The APR is always more than the mortgage rate that you are quoted. This is so because APR entails something more than the mortgage rate. The APR is arrived at on the basis of a formula stipulated by the federal government. The APR is supposed to provide a method for comparing different mortgage loan options. In other words, APR ascertains the actual cost of borrowing. In order to find out the annual percentage rate, you can take the help of an APR calculator. With loans rate, term and closing costs, the APR calculator can be used to determine which loan is most suitable for you. You can find out various APR calculators online. After inserting necessary information, you have to click the calculate button. Then you will get to know the annual percentage rate.
Undoubtedly, APR is a far better indicator than just the rate of interest on the mortgage loan. APR is a much better indicator as it estimates what you will have to pay over an entire year. Here we discuss about some costs included in the APR, other than mortgage rate.
Origination fees
Origination fees are the fees charged by the lenders for the work they do on behalf of the borrowers. APR factors in the origination fees.
Mortgage insurance premiums
Mortgage insurance provides protection against default on payment of the loan. If your down payment amount is less than one-fifth of the selling price of the home, then you will be required to pay the mortgage insurance premium to the lender.
Discount points
Discount points are commonly referred to as points. Points are increments of the mortgage that you pay off at the time of closing. APR factors in the discount points.
Document preparation fees
Taking out a mortgage loan involves some documentation. Arranging those documents entails some costs. Mortgage rate does not take into consideration the costs of documents. APR however includes the documentation fees.
Loan processing fees
There are some costs associated with the loan process. APR includes the loan processing fees.
Underwriting fees
Underwriting fees are the monies collected by the underwriters for offering underwriting services. Underwriting fees are included in APR.
Annual percentage rate is a standard calculation used by the lenders. This is also a very good tool used by the borrowers to compare different loan options. APR gives an approximate calculation of the cost of borrowing. APR does not give the exact figure as the numbers vary between the time of calculation and time of closing. Anyways, calculating APR is definitely a right step. This is a wonderful tool to compare different mortgage loan options.
