Loans APR
When we talk about a loan APR (the annual percentage rate) it means simply the interest rate you will pay when taking out a loan. The mortgage company must declare this when they advertise a rate for a loan. This stops lenders from advertising low rates and hiding their fees.
However you must be careful when using the APR as a yardstick to measure rates as different lenders calculate their APR differently. A low annual percentage rate does not necessarily mean a better interest rate. Ask your lender about all the costs of the loan before making a decision. You then take away all additional fees like homeowners insurance, title fees, escrow fees, attorney fees etc. Then add up all the loan fees. You will then be able to find out the lender with the lowest fees and best deal for you. Here is a summery of what fees are included and what are not so that you may better calculate what you will be paying for.
The fees included in the loan APR are:
• Points - both discount points and origination points
• Pre-paid interest. The interest paid from the date the loan closes to the end of the month. Most mortgage companies assume 15 days of interest in their calculations. However, companies may use any number between 1 and 30!
• Loan-processing fee
• Underwriting fee
• Document-preparation fee
• Private mortgage-insurance
These fees are sometimes included in your loan APR
• Loan-application fee
• Credit life insurance (insurance that will pay off the mortgage if the borrower dies)
These fees are usually not included in your loan APR:
• Title or abstract fee
• Escrow fee
• Attorney fee
• Notary fee
• Document preparation (charged by the closing agent)
• Home-inspection fees
• Recording fee
• Transfer taxes
• Credit report
• Appraisal fee
A loan APR will not tell you how long your rate will be locked in. For example a lender can have a low rate and a short lock in period or have a higher rate and a longer lock in period. A 15 year loan will be calculated differently from a 30 year period. Adjustable and balloon loans will also be calculated differently.
The best way to estimate your loan APR is to exclude all costs that are independent of the loan and then you will be able to access what you are truly going to pay. Added to this you should always comparison shop and do your research for the best loan for you.
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