Archive for the ‘APR’ Category

Want the Best Mortgage Deal? Shop Around!

Friday, June 14th, 2013

Mortgage are still near record lows, but that doesn’t mean you will get the same deal from every lender. Even in an attractive rate atmosphere it’s important to shop around to save yourself big time on your monthly payment as well as over the course of the loan.

Contact Several Lenders

Start your search by calling or

emailing several different lenders. Your bank may be a good source of mortgage funding, but don’t count out local credit unions and mortgage companies. You could pick names out of your local phone directory or look up mortgage firms online, but the most successful way of finding good home loan lenders is often through referrals from friends. A friend’s positive experience means there’s a good chance that you’ll have the same experience. Wherever you find potential lenders, just be sure you contact more than one. That is the only way to compare costs and get the best deal.

Get Detailed Cost Estimates

Ask each of the lenders you contact the same questions about their rates and fee schedules. Many people only use the offered interest rate as a point of comparison, but so much more goes into a loan. A better measure of the actual cost of a loan is the annual percentage rate (APR). The APR factors in the interest rate as well as all other fees and charges associated with the mortgage. Make sure you ask each lender for a complete list of all the fees he charges, including things like points, loan origination fees, private mortgage insurance and closing costs. That way it’s easy to break down the charges for simple comparison among several mortgage lenders.

Negotiate

The final step is to let each lender know they are competing for your business and ask if they can possibly make a better offer. There is always room to negotiate. And lenders won’t be offended to know that you are looking at other options. Competing with others mortgage deals is part of their business.

The only way to know you are getting the best deal is if you have seen the full range of what’s available. And that requires shopping around.

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APR (annual percentage rate) vs Interest Rate

Thursday, September 23rd, 2010

can be confusing at times, especially when you hear different opinions from different experts.

The most common advice? Shop interest rates. Shop and compare the APR (annual percentage rate). Shop fees.  So which is it?

Let’s define both Interest Rate and Apr. – This comes from Wikipedia -

– is the rate at which interest is paid by a borrower for the use of money that they borrower from a lender.

– is a finance charge expressed as an annual rate. In simple terms, it’s the cost of your credit expressed as an annual rate.

The APR rate will usually be higher than your note rate, which is your interest rate. Why is this?  Because the APR includes certain fees which are calculated into the actual rate. The problem with this is that so many people tell you to use the APR as your measuring tool when shopping with other lenders. But not calculates APR the same. Each lender by law is required to send you a Truth in Lending disclosure which shows you the APR.

Keep in mind, your note rate is what is used to calculate your monthly mortgage payment, not the APR rate.

So why can comparing one lender’s APR with another be misleading or incorrect?  Because some lenders can leave some fees out that aren’t mandatory. The rules are not clearly defined.  Sound confusing?

So, what fees are included in the APR?

These fees are generally included :

  • Points – both origination and discount
  • Underwriting, loan processing, and document prep fees
  • commitment fee
  • attorney and or title closing fees
  • PMI (private mortgage insurance) or MIP for FHA (Mortgage insurance premium)
  • Prepaid interest – Interest that is paid from the time that you close to the end of the month. The problem here is that some lenders put 1 day or 5 days down on your good faith estimate. Even if they don’t know your closing date.

Sometimes included :

  • Application fee
  • Tax related service fee

Generally not included :

  • Appraisal fee
  • Credit report fee
  • Title fee
  • Recording fees

Conclusion : What is the overall function of the APR? It’s supposed to measure the ‘true cost’ of the loan. Its supposes to create fairness and a level playing field amongst other lenders. In my opinion, it’s why comparing the APR could be a negative thing.

Another issue about the APR is that it’s based on the length of that mortgage. If you are applying for a 30 year mortgage, it will be based on 365 months. Keeping in mind that the average person moves out of their house in 6.7 years and/or would refinance their mortgage in 4 to 7 years. Overall, it’s extremely rare that someone would keep that same mortgage for the full length.

My opinion? Use the TIL (Truth in Lending) disclosure as a helpful tool to ask questions as to why it might be higher or lower than another companies’ disclosure.  How would do this? By breaking down the lenders’ true costs and compare the interest rate.  I would advise learning to .

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