Why is an APR an important disclosure on loans?
The term APR (Annual Percentage Rate) was specifically developed to help consumers understand the relative cost of a transaction. It is a useful factor to consider when comparing similar loans. The APR is a measure of the total cost of your mortgage expressed as a yearly interest rate. It is designed to help you determine the relative cost of a loan you are considering. The annual percentage rate reflects the amount being financed, the interest rate, the timing of the payments, and any other costs (prepaid charges) required as a condition of the mortgage loan that make up the finance charge. The finance charge reflects as a dollar amount the costs associated with the loan, including interest and other payments required of the borrower such as loan fees, origination fees, application fees, and insurance.
