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So, we got an FHA mortgage at 4.25%....however, the truth in lending paperwork says the apr is 5.0371%. I just noticed this and I'm wondering if this is normal or if we should confront our lender on the large difference? The mortgage is for 360k and we are getting a 6k lender credit.
Any light you can shed on the subject would be greatly appreciated!
I found an APR calculator that gave me some crazy numbers.
Our loan amount is 360k. Added fees, including FHA fees, prepaid interest and origination fee of $300 equal an amount financed of about 365k.....
I plugged that into a calculator that tells me that my monthly interest should be 1795 at 4.25%, which is within $3 of my truth in lending disclosure. However, in order to get the interest rate to an APR of 5.07% I have to add an additional $35,000 in fees. I'm just super confused right now!
The calculator tells me that my interest paid over the life of the loan is 281k and the truth in lending says it is in the 325k range. WOWWWWW
We're putting down 3.5%, because at 4.25% I'll borrow all the money I could possibly get
Is the preliminary box checked? Did you know that if your final APR is .125% higher at closing, it could delay your closing up to a week?
Let me ask you something, did your online APR calculator ask you for mortgage insurance rates? Let's see, your up front MIP is $3600 and the monthly MIP is $345. Was that in your calculation? I'm betting not, which could easily account for the increase in the APR.
Is the preliminary box checked? Did you know that if your final APR is .125% higher at closing, it could delay your closing up to a week?
Let me ask you something, did your online APR calculator ask you for mortgage insurance rates? Let's see, your up front MIP is $3600 and the monthly MIP is $345. Was that in your calculation? I'm betting not, which could easily account for the increase in the APR.
The purpose of APR was along the lines of truth in lending. Meaning before APR (US Gov mandated) you would hear of a loan/interest rate of say 4.0 and another lender would say 4.2. Well many believed that the 4.0 rate was cheaper. Well overall the 4.0 might not be lower in the final monthly cost to you.
The Gov said they needed a way to show consumers actual cost thus APR is the rate you will pay once all things (fees, cost, licenses, etc.) are added into the mortgage so the APR will always be a bit higher then the interest rate to reflect the added difference.
Now it is possible that the lowest interest rate (say the 4.0) could end up costing more per month (mortgage payment) then the higher say 4.2. All that said, lenders are going to add near as much as they can so in the end the lower interest rate will probably still result in a lower APR.
If you are getting the same annual rate for the same amount borrowed from several lender but their APR's vary, it tells you the higher APR rate lender is "adding" more costs in.
The purpose of APR was along the lines of truth in lending. Meaning before APR (US Gov mandated) you would hear of a loan/interest rate of say 4.0 and another lender would say 4.2. Well many believed that the 4.0 rate was cheaper. Well overall the 4.0 might not be lower in the final monthly cost to you.
The Gov said they needed a way to show consumers actual cost thus APR is the rate you will pay once all things (fees, cost, licenses, etc.) are added into the mortgage so the APR will always be a bit higher then the interest rate to reflect the added difference.
Now it is possible that the lowest interest rate (say the 4.0) could end up costing more per month (mortgage payment) then the higher say 4.2. All that said, lenders are going to add near as much as they can so in the end the lower interest rate will probably still result in a lower APR.
If you are getting the same annual rate for the same amount borrowed from several lender but their APR's vary, it tells you the higher APR rate lender is "adding" more costs in.
Hope this helps.
Truth in Lending (APR) was a great idea, but the execution was, and still is, poor. Consumers don't really understand it. I probably run across one buyer a year that specifically requests the APR at the time of quoting, and probably never for the purpose it was designed for - comparison. But that doesn't mean the consumer is stupid either, more like they are comfortable enough now to compare rate/point combinations between lenders and have a feel for acceptable fees. Lenders are required to provide the APR within 72 hours of loan application. And then, the consumer starts to question their decision on choosing their lender, when it's really a matter of not understanding the form.
APR's include all mortgage insurance premiums, monthly and upfront. The OP's loan has significant mortgage insurance, yes, enough to make a $35,000 difference over the likely ~ 12 years to reach 78% of the original loan balance. (Why I continue to preach about 80/10/10 and 80/15/5 loans to avoid MI). OP, call your loan officer in the morning, and I'd go easy on the confrontational tone. - maybe ask them to explain the document to you? I just ran an APR on a 360K FHA loan at 4.25%, without a lender credit and got 5.317%. Keep in mind, the closing costs in my state will be different than your state. It sounds like your APR is right in line.
The fees that are usually included in the APR are:
• Loan processing fee- the fee charged by the lender in order to process the mortgage.
• Document preparation fee- typically paid to the lender or lender's agency for preparing the sale documents.
• Underwriting fee- usually is allocated towards staff salaries
• Discount points- the points that a borrower pays to receive a lower interest rate.
• Origination points- the points that a borrower pays to receive a specific interest rate.
• Private mortgage insurance cost, if applicable-
• Pre-paid interest amount- the initial amount of interest that is charged on the mortgage.
Truth in Lending (APR) was a great idea, but the execution was, and still is, poor. Consumers don't really understand it. I probably run across one buyer a year that specifically requests the APR at the time of quoting, and probably never for the purpose it was designed for - comparison. But that doesn't mean the consumer is stupid either, more like they are comfortable enough now to compare rate/point combinations between lenders and have a feel for acceptable fees. Lenders are required to provide the APR within 72 hours of loan application. And then, the consumer starts to question their decision on choosing their lender, when it's really a matter of not understanding the form.
APR's include all mortgage insurance premiums, monthly and upfront. The OP's loan has significant mortgage insurance, yes, enough to make a $35,000 difference over the likely ~ 12 years to reach 78% of the original loan balance. (Why I continue to preach about 80/10/10 and 80/15/5 loans to avoid MI). OP, call your loan officer in the morning, and I'd go easy on the confrontational tone. - maybe ask them to explain the document to you? I just ran an APR on a 360K FHA loan at 4.25%, without a lender credit and got 5.317%. Keep in mind, the closing costs in my state will be different than your state. It sounds like your APR is right in line.
The fees that are usually included in the APR are:
• Loan processing fee- the fee charged by the lender in order to process the mortgage.
• Document preparation fee- typically paid to the lender or lender's agency for preparing the sale documents.
• Underwriting fee- usually is allocated towards staff salaries
• Discount points- the points that a borrower pays to receive a lower interest rate.
• Origination points- the points that a borrower pays to receive a specific interest rate.
• Private mortgage insurance cost, if applicable-
• Pre-paid interest amount- the initial amount of interest that is charged on the mortgage.
Great answer. We found out that the PMI was calculated into this. We are going with an FHA mortgage because the math wasn't there for a 80/10/10 or an 80/15/5.
Hopefully this is not to far off of the original question but I haven't been able to find a reasonable explanation online. I understand that the purpose of the APR is for comparison, but I guess I get confused b/c you are not (as far as I know with fha loans) allowed to finance any of your closing costs. So wouldn't the true comparison just be interest rates and out of pocket at closing or no?
Hopefully this is not to far off of the original question but I haven't been able to find a reasonable explanation online. I understand that the purpose of the APR is for comparison, but I guess I get confused b/c you are not (as far as I know with fha loans) allowed to finance any of your closing costs. So wouldn't the true comparison just be interest rates and out of pocket at closing or no?
Thank you, you have just provided a perfect illustration why the APR is really not a practical application when shopping for a mortgage, but it sure makes our government happy.
Sorta scary that someone whose screen name includes a reference to a profession that ought to be quite comfortable with the details of borrowing / lending is willing to accept such a huge up charge for essentially the lender's belief that they are a poor risk...
Not meaning to knock anyone here, but right now 30 fixed rates for the best borrowers are at historic lows -- 4% is just an incredibly good deal. I can sorta sympathize that if your credit is not the best and you need to live in an area with higher costs you are kinda at the mercy of the charges tacked on, but I wonder what that says about really riding this loan out -- will the upfront mortgage insurance premium really make sense? That gooses the rate into a much higher place and results in a much more costly loan...
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