How Does the APR Calculation Help a Homebuyer?
Understanding the difference between the actual interest rate and the annual percentage rate is one of the most difficult aspects of shopping for mortgages. Although the interest rate represents the actual cost of borrowing money, it is not the only cost involved in obtaining a mortgage.
It is also known as the effective interest rates paid on mortgages. The APR is a measure of the total mortgage costs. This includes both the interest expense and any one-time fees such as points, closing costs. If you want to search for further details about APR cost calculations then check this site
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There are many loan products and lenders that can vary in the costs of obtaining a mortgage. For example, a fixed, variable, or balloon loan. The APR is an all-encompassing calculation and is therefore always higher than what the actual interest rate is.
The APR represents the total cost of obtaining a mortgage. The APR calculation can be used to compare other mortgages.
Here are the charges included in the APR calculation:
* Points and Origination Fee – These fees can be paid upfront to lower the initial or permanent interest rates.
* Bank Fees- These fees are listed on the good faith estimate. They include underwriting, lock-in, processing, doc preparation, commitment, and administration.
* Title Fees- Only certain fees are included in the APR calculation. These include attorney's fees and title insurance.
* Mortgage Insurance Premium – This is an additional charge that the borrower pays to insure his loan against default.
* Pre-Paid interest – This is the monthly interest that is paid between the closing date and the close of the month.
All fees involved in obtaining a mortgage are not included in the APR calculation. The calculation may include the loan application fee and tax service fees. Title, recording, appraisal, credit report, and other fees are not usually included in the calculation.