LOAN APR
"APR"- Confused??? Well most of us get confused when we hear of APR. The annual percentage rate that is an interest fee different from the general note rate is called as APR; it is the true cost of a loan. Loan apr helps you determine the true cost of borrowing the money.
The APR will generally be slightly higher than the note rate because it includes other items related with acquiring a mortgage. It is an enhanced indicator than the normal interest rate of the actual cost of a mortgage loan.
When a person applies for a Loan apr, the lender is supposed to mail a good faith estimate and a truth in lending statement within three business days. The note rate is quoted, along with the APR. It is considered better than the interest rate because it estimates the sum to be paid over the period of a complete year. The Federal Truth in Lending law states that all the companies into lending money need to specify their APR when they advertise their rates; this inhibits them from advertising low interest rates and other costs that would mislead the customers. It does not affect the monthly payment of the loan. The amount of money or the monthly installment to be paid depends on the rate of interest and the duration of the loan.
The Loan apr is calculated based on a formula given and set by the government. It is invented to provide a method for comparing one mortgage offer against another, even when the rates, points, and costs differ.
The APR takes into contemplation the following costs:
Points: Including both discount points and originating points. Discount point is the growth of one percent of the mortgage that a person pays off at the closing. If a person to lower his interest rate pays off his discount point willingly then it is not included in the APR. However if a person is required to pay off these points then the cost is factored in when the APR in calculated. Origination point is the fee charged by the lender for the work done by him on part of the borrower.
Pre-paid interest: This is the interest money that is remunerated from the date of closing the loan to the end of the month. Usually a term of 15 days is required by mortgage companies to calculate. However, companies may use any number between 1 and 30!
Loan-processing fee: Before the lender gives a loan he collects information to process the loan. Some lenders charge this fee and it is named loan-processing fee.
Underwriting fee: This fee is charged to evaluate the loan application whether it is to be approved or not, the underwriter cross checks that the documents provided with the application supports it and he also sees whether the loan application and documents make sense.
Document-preparation fee: After the approval of the loan from the underwriter the legal documents that are needed at the time of closing must be prepared which include truth in lending forms, the mortgage note, escrow instructions and the deed of trust.
Private mortgage-insurance: This is the insurance that includes the indemnity against failure to pay off the loan.
The following fees are sometimes included while calculating APR:
Loan-application fee: It covers the lender's cost to process the information on your loan. This fee is paid generally at the time of filing the application. This can also be added in closing costs by some of the lenders.
Credit life insurance: If during the term of loan the borrower dies then his insurance is used to pay off the mortgage.
The following fees are normally not included in the APR:
Title or abstract fee: The charges for establishing and transferring ownership
Escrow fee: Generally you may be asked to pay for some of the items that will be due after closing by your lender, items usually include insurance premiums.
Attorney fee: This includes the fee required to prepare and review the documents considered necessary to close the loan.
Notary fee: Before the mortgage deed of is submitted in the court it the signature needs to be attested by a notary. He assesses the signature on the document whether it is true and correct.
Recording fee: This is It is a small fee that is usually not included in APR and covers the charge of the paperwork necessary to record the home purchase.
Credit report: As a part of the requirements for the application document the lender requires your credit report and credit history. He can get the credit reports from various bureaus (one or more than one) or from a firm that collects credit bureau reports.
Appraisal fee: This is the fee charged by the evaluator to approximate the market value of the property.
The APR does not warn about the duration of how long is the rate is locked. You should never compare loans for different terms on the basis of their APR's as the one for a shorter duration may have a lower interest but a higher APR.
For comparing loans at the first stage the Loan apr should be considered as a starting. It is a result of complex calculations that are not clearly defined. There is no alternate to get good-faith estimation from the lenders to compare the costs.
