What is APR?
• Rarely is there such a simple question in the mortgage industry with such a complicated answer. The true definition of this one even puzzles some seasoned veterans. The good news for you and for them is that there is a generally accepted brief version of the answer that even experts will use. The bad news is that, in order to truly understand, let alone be able to explain the calculation for APR, a truly long and complicated answer is the only option. For those of you not interested in long and complicated, here is a very serviceable and very brief definition: APR is the true cost of money over time. In other words, your mortgage has a NOTE rate, or the interest rate on your loan, but it also has closing costs, prepaid interest, and other finance charges. The APR is the cost of your normal interest and those finance charges over time expressed as an interest rate relative to the rate you are paying on your mortgage. Now for the long and boring stuff: APR stands for Annual Percent Rat
APR is the Annual Percentage Rate and is a calculation of the finance charges. The federal government requires that all retail installment contracts disclose the APR, which is the common denominator of a variety of interest rate types. The required method of disclosure is the total amount of finance charges expressed as a true percentage of the declining unpaid balance.
Annual Percentage Rate (APR) represents the total cost of credit, including interest and a portion of your closing costs. • An estimated APR appears on the Truth in Lending Disclosure you receive after applying for a loan as required by law. • By showing the overall cost of the loan as a percentage, you can accurately compare the costs of one loan to another. • APR differs from the actual interest rate which is used to calculate your monthly payments.
