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Applying For Mortgage Loans? Know The Annual Percentage Rate |
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You want to apply for mortgage loans, but how do you know which one suits you the best? With so many mortgage loans flooding the market, it becomes quite a task to select the right one. Furthermore, just knowing the interest rates is not sufficient when you want to compare loans, because there are many other costs and fees involved that remain hidden. Interest rates don't give you an idea about the actual cost of the loans. Have you considered the annual percentage rate (APR)? If you want to know the actual cost of mortgage loans, look for their APRs rather than interest rates. This is because APR estimates the costs you will pay over the entire year and gives a clear idea of the actual cost of mortgage loans. It is mandatory for lenders of mortgage loans to reveal the APRs of the loans along with their interest rates. The Federal Truth in Lending law compels them to do so. With this law, the mortgage loan companies have no chance to advertise unjustifiably low interest rates. They are legally bound to exhibit fees and other costs that make up the real cost of the mortgage loans. The APR of a loan makes it easier for you to compare the mortgage loans and, thus, enables you to select the most suited one. While checking out the APRs of the mortgage loans you might come across one of the extra fees mentioned in the APR. These are discount points, generally known as points. They indicate an increase of 1% in the mortgage loans that you pay off at the completion of the loan term. While going for mortgage loans, the lender might charge you for the work done on your behalf. These charges are called origination fees. Look carefully at the APR; chances are that you might confuse the origination fees with the points. Next, you may find mortgage insurance premiums. In case you default on the mortgage loans payment, then you're required to pay mortgage insurance. Some mortgage loans lenders ask you to pay the insurance when your down payment is less than 20% of the selling price of the home. There is yet another cost included in APR, prepaid mortgage interest. Usually, you pay a monthly interest on mortgage loans. But prepaid mortgage interest is different. You're required to pay this interest at the closing of the loan to cover the gap between the time of closure of the loan and the first day of the next month. But APR doesn't include each and every cost. Title insurance is one of them. Also, you won't learn anything about balloon payments, prepayment penalties, or the time of the fixed rate of the loan through APR. So, though it's important for you to know the APRs while applying for mortgage loans, yet it's wise not to be fully dependent on it. APR is not a precise tool for knowing the actual cost of mortgage loans; it serves only as a guide while searching for a suitable mortgage loan. Certain variations can be observed in the APR between the time of calculating the costs and the closing time of the mortgage loans. Hence, it's good to review other factors too, when applying for mortgage loans. Those of you who are taking the mortgage loans for the first time may find it difficult to compare the APRs of the loans. Don't worry. There are many Internet sites available that have APR calculators. All you have to do is to enter the different costs and the website will calculate the APRs. Thus, you can now determine which loan suits your requirements. Finally, an important thing to remember here is that, you should compare only similar mortgage loans. Comparing different types of mortgage loans won't give reliable results. For example, you can compare two 30-year fixed mortgage loans, but not a 30-year loan with a 15-year one. |
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