The Truth About Rates and APR
Here is a definition of APR (Annual Percentage Rate) we pulled for another mortgage Web
site:
The first sentence is true.
The second sentence could not be further from the truth.
The Real Truth About APR
Truth # 1 - Annual Percentage Rate disclosure requirements were established by a rule
known as REG Z. All lenders are required to comply with REG Z by disclosing the APR on a
form known as "The Truth In Lending Disclosure"
Truth # 2 - Reg Z allows each lender to comply with REG Z in their own way as long as they
have a written legal opinion stating they are in compliance. Therefore, virtually all
lenders have their own way of calculating their "Truth In Lending Disclosure."
Truth # 3 - Since all lenders do not apply the same rules in calculating
the Annual Percentage Rate, it absolutely, positively does not provide consumers with a
good basis for comparing loan costs.
Using the APR to comparison shop is absolutely worthless. Can we be any more clear?
How To Really Shop For A Home Loan - Five Steps to Peace
of Mind
Step # 1 - Determine what type of loan you need and/or want. With today's rates,
usually the choice is easy - a 30 or 15 year fixed rate loan.
Step # 2 - Shop at least three lenders. Even with a referral you need to get a written
estimate so you can compare quotes. This is the only guaranteed way to get a good rate at
a fair price.
Step # 3 - Request a written quote from each lender that discloses every fee, point,
charge, cost and credit associated with your transaction, based on an interest rate
guarantee of 30 days (a 30 day lock).
Step # 4 - Follow the rule of SAME. Make certain each lender quotes the SAME LOAN TYPE,
for the SAME TERM, for the SAME RATE, for the SAME LOCK PERIOD on the SAME DAY. Anything
less and you are not comparing apples to apples.
Step # 5 - Do the math. Sit down with each quote; eliminate the costs of interim (or per
diem) interest, property taxes, homeowners insurance and mortgage insurance. Leave
everything else in. The lender with the lowest cost after these adjustments is the least
expensive. If the differences are too close to care about, then stick with the referred
lender. If the differences are significant to you, then give the referred lender a last
chance to earn your business. If a non-referred lender is the winner, then ask them for
references.
;)
;)
