What is an APR?By JJ Singh
Loan page Columnist
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"APR" is one of the most misunderstood terms in the world of home mortgages. While you might know that it means "Annual Percentage Rate", you may not know that it includes more than the interest rate. APR is a figure used to determine the yearly cost of a new home loan including all other fees like points, origination fees, and lending fees.
APR's are Your FriendTo address deceptive marketing tactics, the federal government enacted the Truth in Lending Act, which required that lenders advertise and make explicit the Annual Percentage Rate associated with their new home loans. The upshot is that APRs are your friend; they allow you to compare offers from different lenders on a level playing field.
However, the APR system is not perfect. In some cases the Annual Percentage Rate won't include extra fees such as title insurance and appraisal. In general, the best method for loan shopping is to ask for a good-faith estimate, which details all costs and gives you a total estimated cost of the loan using a mortgage calculator.
Home Loans Do Your ResearchThe important thing to remember is that the APR is a good basis for comparison between new home loan offers. When you get further in the process, you can dig deeper to get yourself the best deal possible.
About the AuthorJJ Singh is a loan consultant who has mortgaged his life away to the micro finance industry in New York City. He holds a bachelor's degree in Economics from the University of Virginia.
Sources:Federal Trade Commission
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