What is an APR for cheap home loans?
"Annual Percentage Rate" (APR) is one of the most misunderstood mortgage terms. You may know that APR stands for "Annual Percentage Rate," but you might not know that it means more than just the interest rate. APR is a number that is used to figure out how much a new home loan will cost each year, including points, origination fees, and lending fees. Many people think this is a secret, but it's just the amount being paid on the mortgage.
Back in the day, it was hard to figure out how much a mortgage would cost without reading all the small print or using a complicated mortgage calculator. Even if one lender gives you an interest rate of 7.50% and another gives you a rate of 6%, it's not always clear which is the better deal. All of the extra fees could make the 6-percent loan a lot more expensive in the long run.
Because the terms of loans are often different, the federal government requires lenders to give the APR. Different loan terms from different lenders can make it hard to tell which offer is a sour persimmon and which is a real peach. APR tells you who the peaches are.
APR's are Your Friend
In order to stop misleading advertising, the federal government passed the Truth in Lending Act, which said that lenders had to advertise and be clear about the APR on their new home loans. In the end, APRs are your friend because they make it easy to compare offers from different lenders.
The APR system is not perfect, though. In some cases, extra fees like title insurance and appraisal won't be included in the APR. In general, the best way to shop for a loan is to ask for a good-faith estimate. This gives you a breakdown of all costs and a mortgage calculator estimate of the total cost of the loan.
APR takes some of the costs of getting a loan into account, such as points, most loan fees, and mortgage insurance. It doesn't include some fees, like non-refundable application fees, late payment fees, title insurance premiums, and fees for title examination, property appraisals, and document preparation.
Do your research on home loans.
The APR is a good way to compare different new home loan offers. This is the most important thing to remember. When you're further along in the process, you can do more research to find the best deal.
