Sr. Loan Officer
Lighthouse Mortgage BK#0906029
Phone: 877 538−9833
Fax: 480 718−7380
Annual Percentage Rate
What is the Real Cost of Financing?
Annual Percentage Rate (APR) is a tool that consumers can use as a
starting point to compare loan programs. However, it's important to keep
in mind that APR is not a perfect system, and not all lenders calculate
APR in the same way. While the Federal Truth−in−Lending Act does
require any mortgage broker or lender to disclose APR to the consumer,
there is no rule written in stone for calculating this number that each and
every lender agrees upon.
The point of calculating APR is to let the consumer know what the actual
cost of their financing is in the form of a yearly rate. APR factors in
certain closing costs and fees associated with the loan, and spreads this
total over the life of the loan along with the actual note rate. The
objective is to give the consumer a clearer picture of what their actual
costs are, and this inhibits lenders from hiding fees or upfront costs behind low interest rates in their advertising.
Fees that are generally included in the APR calculation are points, pre−paid interest, loan processing fees, underwriting
fees, document preparation fees, and private mortgage insurance. On occasion, lenders will include a loan application fee
and/or credit life insurance. Fees that are normally not included in the APR calculation are fees from Title, Escrow,
attorney, notary, document preparation, home inspection, recording, transfer taxes, credit report and appraisal.
Remember, all lenders do not perform the calculation the same way. Moreover, APR does not consider the possibility of
making pre−payments, moving or refinancing. Unless the interest rate is tied to a fixed instrument, APR is even more
confusing. Calculating APRs on adjustable rate and balloon mortgages is more complex because we really have no way
of knowing what future rates will be.
If all lenders calculated APR the same way, we could m