I often get asked often if APRs (Annual Percentage Rate) are a good way to determine lenders rates and fees?

My answer is no, it's not.  While you can use the APR as a guideline to help you shop for your loan, you should not solely depend on it.  What you should be looking at is total fees, possible rate adjustments in the future if you're holding an ARM (which stands for adjustable rate mortgage), and you should also be considering the length of time that you plan on staying in your home. 

The Federal Truth in Lending Law requires that all financial institutions disclose the APR when they advertise a rate.  This is why you see it everywhere.  The APR is designed to show you the actual cost of obtaining your financing.  The problem is, that it includes some, but not all of your closing cost fees in it's calculation.  These fees in addition to the interest rate determine your estimated cost of financing over the full term of the loan.  It may be misleading to spread the effect of some of these up front costs over the life of the loan. 

Also, the APR does not include all of the closing fees that you are likely to pay.  Lenders are allowed to interpret which fees they may include in their APR calculation.  Certain fees like appraisals, title work, and other document preparation fees are usually not included, even though you'll have to pay them.

Remember, that the APR is an "effective" interest rate and not the actual interest rate that your monthly mortgage payments will be based off of.

Good luck and happy mortgaging:)  If you have any mortgage related questions, please email me.

Thank you.