One of the terms you will come into contact with often as you calculate your costs of a refinance home mortgage is the APR, or the Annual Percentage Rate. This amount puts your loan cost into percentage format. So for example, if you are paying an APR of ten percent, for every one hundred dollars you borrow each year, your APR will be ten dollars.
But there’s more to look at than the APR when trying to figure out which is the best loan for you. There are many variables which can affect your APR, which makes careful examination of each quote you receive that much more important.
What APR Includes
Your APR could include several costs, such as processing fees, points or PMI (private mortgage insurance). That’s why no loan can be adequately evaluated by consulting the APR alone. As you move through the loan selection process, the most important thing to keep in mind is that the APR represents the total amount that your home will cost you.
Consider Length of Payment
Another important aspect of the loan process to look at his how long you’ll be paying the loan. Because for example, you may have to pay one-time charges at first which may increase your loan’s overall cost, even though your APR may distribute those charges over a longer time period which can make your rate appear to be lower.
Lenders are required by law to tell you the APR so that you can more easily compare their loan with others. This must be disclosed along with the nominal rate, according to the Truth in Lending Act. Contrary to what many homeowners believe, the APR is not completely accurate. This is because it doesn’t need to be. Lenders will often round their percentage points to the nearest 1/8th of a percent, and will round that number either up or down.
Unfortunately, even the best mortgage calculator is not enough to stifle the attempts of some lenders to alter the APR. It is common practice for some lenders to lock the price, but not the APR, which can lead to much confusion on the homeowners part, as well as much distrust in the company itself. But there are lenders who not only guarantee their fees, but practice transparency by displaying those fees on their web sites.
This kind of transparency is definitely something to look for when comparing the APRs of different companies. But what if you’ve already gotten a loan through your lender, and have found that your APR has suddenly risen, despite the fact that your interest rate has stayed the same?
Dealing With a Lender Who Has Altered Their APR
Despite the fact that you can’t always trade a bad lender in for a good one, you do have options if your lender has raised your APR and you are very close to closing. And those options lie in understanding where the lender gets the bulk of their business, which is likely from the realtor who sold you your home, as they were likely who referred you to your current lender. These referrals are vital to lenders, and so raising a fuss with your agent is not good for their bottom line.
Communicating your expectations to your lender is one way to deal with an altered APR. For example, you can tell your lender that you expected a settlement statement at the closing of your mortgage that showed the fees you would receive when you locked in your mortgage.
In addition to communicating this expectation, you can also tell them that you will be making your sales agent responsible for the payment of the difference between the APR quoted at the beginning and the changed rate. This may just be enough to cause your lender to consider lowering your APR to the percentage that was originally quoted.
As with anything, the more knowledge you gain, the more empowered you become. Letting your lender know that you have the same knowledge they do can be just enough to cause them think twice about altering your APR.
Guest author Sam Stieler writes on a variety of topics, but is particularly well-versed on advising consumers how a home mortgage calculator can help them identify how much mortgage they can afford. You can also find Sam on Google.