UNDERSTANDING ANNUAL PERCENTAGE RATE (APR)
Several years ago the U.S. Congress decided consumers needed protection from lenders and it wrote into law the Truth in Lending Act. Through it, the annual percentage rate (APR) became a benchmark enabling you to compare one lender's offering to another.
At the heart of the legislation is a requirement that lenders state all costs involved in making the loan and amortize them over the term of the loan. In addition to the interest you pay on the loan, the APR includes an origination fee, discount points and any other loan-related fees that might exist. Remember, however, that the APR does not include settlement-related costs such as attorney fees, title insurance, recording taxes, property survey, and so on. The APR is the effective interest rate you would be paying if you spread the loan-related costs over the life of your loan.
Despite Congress' good intentions, the APR for a mortgage loan typically is calculated and disclosed to you afteryou have picked your lender and made a loan application. For the borrower this timing is not exactly optimum! Consequently, if you want to compare costs from one lender to another beforehand, you should ask prospective lenders to give you a Good Faith Estimate of Settlement costs (GFE).
Look for my weekly article in the Sandhills Real Estate section of The Pilot newspaper.
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