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Lender rating
Since January 2009
The interest rate is the “Yearly Rate” a lender charges for allowing the borrower to use their money for a given time period. This can also be called your “Note Rate”.
The APR consists of 2 factors, your actual interest rate (a.k.a Note Rate) plus any additional costs. The additional costs might include things like your prepaid interest, private mortgage insurance or any closing costs. Basically, the APR shows the total cost of credit on a yearly basis after ALL charges are taken into consideration. It is typically higher than your actual interest rate because it includes these additional items and assumes you will keep the loan to for the full term.
I still recommend that the APR be explicitly explained to the client. It is the cost of the loan; annualized. I guess it is artificial if you decide to sell two years from now. The cost is amortized through the life of the loan.
I explain how this number is computed so the client can play with the APR to truly compare costs of his loan. Mortgage insurance IS a cost of money so it needs to be included. You can elect to have NO mortgage insurance and have it LP (Lender paid). But your rate and APR would be higher. The client can delete interest and title charges and add in one time costs etc to compare his cost of money.
On Adjustable notes, (Not existent in today's market) you need to include the APR with the worst case scenario. A no cost loan with 8% margin can only be seen in the APR. All these 2/28 or 3/27 loans had 18% + APR, but mortgage salesmen told the clients that this "APR" did not matter....not to look at it or that it was artificial...
I also now recommend my clients to roll in their cost of a previous loan into their APR. Refi addicts want that trophy low rate forgetting how much they have paid in previous notes that were amortized for 30 years and they held for 12 months. Ouch!
How about those 2/27 ! How high would that APR be if they were amortized for 24 months!!!! 34% ? And people wonder why they all went bust.
Lender rating
Since January 2009
APR , annualized percentage rate. Very important but can be manipulated by Mortgage brokers. Federal law prohibits advertising an interest rate with out an APR. Every time you see an interest rate you will see the APR next to it.
An interest rate is useless without the APR. How about an 30 year fixed MTG at 3.875% ! Sounds good until you learn you paid 4.5 points in fees to get that.
The TIL (Truth in lending) should be your first document you study from a lender/broker. Most are not correct but you will have to sign one at closing that is.
Lender rating
Since January 2009
ianterowsky, you should ignore the APR altogether, Only focus on the interest rate, the term ( 15 Yr, 30 Yr,5/1 Arm, etc) and the closing costs. APR figures can be misleading. Mortgage Insurance has far more impact on the APR than anything, and even if you were refinancing and paying cash for closing costs, the APR would still be much higher if mortgage insurance was included. The same holds true for a no closing cost loan with MI. You will also see an APR number way below the interest rate in todays quotes and that is because the margin and index are far less than what the lenders start rate is. The APR on Arms is meaningless since the rate will move up in the future. The government created APR to help consumers but it doesn't and I have seen a few Closing Attorneys struggle to articulate what APR is or does. BTW, that's a great looking can of spam.
Lender rating
Since August 2009
Lender rating
Since September 2009
Hi Michael-
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Lender rating
Since November 2009
Lender rating
Since January 2009
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What's the difference between "Rate" and "APR" and why is one higher?
ianterowsky
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