Why is the annual percentage rate (APR) different from the note rate?
The Federal Truth in Lending law requires mortgage companies to disclose the APR when they advertise rates. The APR was meant to allow consumers to easily compare loan programs. An APR factors the cost of borrowing in with the note rate. Unfortunately, lenders can legally calculate APRs differently. A loan with a lower APR may not be the most competitive. The APR can be confusing because the rules for calculating them are not clearly defined. The following are most often included when calculating the APR: • Document preparation (lender) • Loan processing • Pre-paid interest – Interest paid from the date the loan closes through the end of the month • Points • Private mortgage insurance • Underwriting Third party fees for the title insurance, escrow, attorney, notary, credit report, recording and appraisal are generally NOT included in the APR calculation. The APR does NOT affect your monthly payment. Your monthly payment is based upon your note rate and the amortization period.
Related Questions
- Why is the Annual Percentage Rate (APR) on the Truth in Lending Disclosure higher than the "rate" shown on my note, which is the rate I thought I chose for my first mortgage or equity loan?
- What is the Truth In Lending Disclosure and why is the APR different than the note rate?
- Why is the annual percentage rate (APR) different from the note rate?
