Rate and A.P.R. (insurance, loan, interest rate, fees)

[gc333]

What should the difference be between the note rate and A.P.R? For example, 6% rate and 6.5% apr, apr is .5 higher. What is average on mortgages?

[cdelena]

The APR formula combines a loan’s interest costs with other fees charged by a lender over the life of the loan, and expresses them as a yearly percentage. The APR is therefore a better reflection of the true cost of borrowing than interest rates alone and is a good benchmark for comparing loan offers.

Loan charges at close will boost the actual rate so even if you have a relatively clean loan there may be .02 to .09 difference. Bigger charges and points can drive the APR up well over the note rate.

[renriq02]

I wouldnt look at the APR as the benchmark to compare loans.

Most lenders dont use the same APR calculation, and you wont know who's using hte correct model.

It's important to shop a loan by 2 ways

1. Note Rate
2. Lender Fees

Lender A gives a 6% note rate...and their fees are 2000..6.25% APR

Lender B gives a 6% note rate...lender fees are 3000 ...6.26% APR

There's not much of a difference between 6.25 and 6.26..but there's a huge difference in fees..1000!

Different Scenario

Lender A gives 6% note rate..fees are 2000 ..6.25% APR
Lender B gives 6% note rate...fees are 1500...6.25% APR

As you can see the note rate AND the APR is the same.
The fees are not the same..
The APR maybe different because different APR calculations.

Always shop the note rate...then look at the 800 lines which are lender fees.

Good luck!

[wankel7]

It seems like some lenders calculate their APR different than others. It seems like the best way to compare is rate and fees.

[esmith143]

Originally Posted by wankel7

It seems like some lenders calculate their APR different than others.

That is impossible. The APR calculation algorithm is unequivocally specified by the federal law (Truth In Lending Act).

Generally speaking, in the absence of up-front fees, APR is equal to mortgage interest rate + mortgage insurance rate (if any). Every 1% of loan amount in up-front fees increases APR by approximately 0.1% if it's a 30-year fixed mortgage, by 0.15% if it's a 15-year fixed mortgage.

[ShanetheMortgageMan]

Originally Posted by esmith143

That is impossible. The APR calculation algorithm is unequivocally specified by the federal law (Truth In Lending Act).

Generally speaking, in the absence of up-front fees, APR is equal to mortgage interest rate + mortgage insurance rate (if any). Every 1% of loan amount in up-front fees increases APR by approximately 0.1% if it's a 30-year fixed mortgage, by 0.15% if it's a 15-year fixed mortgage.

It might seem impossible but it happens, not all lenders TIL APR calculators are programmed the same.