Do You Really Understand Your Mortgage APR?
The federal government supports the annual percentage rate disclosure (APR) as the standard measurement of loan cost for mortgage shoppers beginning their journey to find a good deal on a home loan. You should understand what goes into a mortgage APR and how you can utilize this knowledge to find the best, most reasonable loan for you.
APR is a disclosure seen in advertisements of credit products such as loans and credit cards to make credit shopping easier. However, you won’t see APR on a mortgage loan statement because the APR is used as a cost measure during application. It is the costs of the mortgage loan added to the interest rate and re-amortized based on the size of the loan you’re seeking over the loan term (e.g. 360 months for a 30-year fixed-rate mortgage).
The APR does not change your loan amount or payment. Your note rate is what determines your principal and interest mortgage payment. The APR should be higher than the note rate on your loan because it takes into consideration the fees, adds them to your loan amount and re-calculates the figure over the loan term.
Keep in mind that a mortgage with a lower note rate and a higher APR may actually be a lower cost mortgage for you than a loan with a lower APR but a higher note rate. How long you keep the mortgage plays a big role in the cost of the loan, too. Also, remember that APR does not take into consideration which mortgage loan makes the most financial sense for you because it is not the driver of your monthly principal and interest payment or closing costs.
If you have any questions about your APR, don’t hesitate to contact me.