What is an Annual Percentage Rate (APR)?
The annual percentage rate (APR) is an interest rate that reflects the cost of your mortgage loan as a yearly rate and is different from the actual note rate. It is commonly used to compare loan programs from different lenders. The Federal Truth in Lending law requires that mortgage companies disclose the APR when they advertise a rate. For example: 30-year fixed / 8% / 1 point / 8.107% APR. The APR does NOT affect your monthly payments. Your monthly payments are calculated by your note interest rate and the length of your loan. The APR is a very confusing number! Even mortgage bankers and brokers admit it is confusing. The APR is designed to measure the “true cost of a loan.” It creates a level playing field for lenders. It prevents lenders from advertising a low rate and then hiding fees that increase your costs.
A. Annual Percentage Rate is an interest rate reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account points, interest and other credit costs. The APR allows borrowers to compare different types of mortgages and lenders based on the annual cost for each loan.
The Federal Truth in Lending law requires mortgage companies to disclose the APR when they advertise rates. The APR was designed to allow consumers the ability to easily compare loan programs. An APR factors into the interest rate the cost of borrowing. Unfortunately, lenders can legally calculate APRs differently. A loan with a lower APR may not necessarily be the most competitive. APR’s can be confusing because the rules for calculating them are not clearly defined.
The yearly interest percentage of a loan, as expressed by the actual rate of interest paid. For example: 6% add-on interest would be much more than 6% simple interest, even though both would say 6%. The A.P.R. is disclosed as a requirement of federal truth in lending statutes and should include all finance charges. Back to the top Negatively Amortized Loans This is a deferred interest loan that is very powerful and the most misunderstood program because of its many options. Basically, the lender allows the borrower to make monthly payments that are less than the accruing interest. Therefore, if the borrower chooses to make the minimum monthly payment, the loan balance will increase by the amount of interest not paid on the loan. The power is in the borrower’s ability to choose either making the full loan payment, the minimum payment, or any amount in between. If a borrower’s income varies throughout the year (commissions, bonuses, etc.), the borrower can make the lesser payment during
