Well, maybe my clients don’t exactly frame it that way, but that is what everyone really wants to know….deep down inside. I know that you are brainwashed to believe that APR is the only thing to look at. Guess what, though? It is not.
APR is basically the cost of a loan over time. It incorporates the interest rate of the loan into a calculation along with certain loan fees like: origination and discount points, lender fees like processing and underwriting, prepaid interest, title fees, mortgage insurance, funding fees etc. etc.
The original intent of APR calculations were to help consumers see which loan is actually better for them when they are shopping and to show consumers the cost of the loan as a percentage over time.
Then there is the interest rate. This is just the “plain old rate” that you have where your mortgage payment is calculated upon.
Did you know that a loan with an interest rate of 3.25% can have the same APR as a loan with an interest rate of 3.50%? Say what?? Yep. It can.
Did you know that APR is easily manipulated by lenders to be made to look better than it really is depending on how they itemize fees? I bet you didn’t….but the answer is that it happens all of the time. That is why you have to be careful to NOT just look at APR.
If you are looking at just the bottom line numbers and that is the only thing you care about, then let me give you a pointer on what to look at in order to make a decision…
There are 3 things. That is it. Don’t look at anything else but these 3 things!!
1) Interest rate offered
2) Lender fees such as origination points, processing, underwriting, administration, discount points or credits charged or credited for that particular rate
3) Principal and interest payment
Also, as I have said before, in order to accurately compare lenders on the above, you HAVE to get quotes on the same day…because interest rates change on a daily (sometimes even hourly) basis.
THAT IS IT!! Want to know why?
Because those are the only TRUE indicators of what you will be paying for the loan that you are being offered. ALL OTHER FEES can easily be manipulated to look better than someone else’s.
Tricky lenders. Shame on you. Now, I am not saying that everyone does this…but at the end of the day, it is all on how you input the fees, intentional or not.
Consumers!! Wake up and take my advice on this.
Don’t just look at the APR. Look at the 3 items I just told you about. Make your decision from there. Also, as I have said before, it is also not just about the numbers…you should work with someone you trust. Someone who has a good track record. Cheapest is NOT always the best in this situation. Peace of mind is worth more than saving $500 bucks in closing costs. So be careful and happy home loan shopping!
You are welcome!
|I love educating and telling it like it is!|