CLARIFICATION apr or mortgage interest?

APR takes into consideration the closing costs and mortgage insurance too. But the basic idea is to compare lender offers. If Lender A is offer 4.25%, and Lender B is offering 4.25%, who is better? The rate is the same, but what about closing costs? APR also factors in closing costs, so the lender with the lower APR has lower costs... Unfortunately, it still isn't that easy, because if the lenders are using two different physical rates, the lender with the lower rate will always have a lower APR - But maybe that loan with the lower rate has twice the closing costs. Do you want to pay twice the closing costs? I have a good article at http://joemetzler.com/apr.htm that everyone should read, because choosing a loan simply by APR can often times cost you a lot of money.

APR is the effective interest rate including certain fees paid in conjunction with the mortgage so that you can compare an offer from one company to another. The note rate is what is actually being charged to borrow the money and if you take a mortgage calculator and plug in the loan amount, term and interest rate you'll get the same payment. Try either the FHA or Federal Reserve website for more detailed explanation. Bottom line, make sure you know ALL the fees being charged from one lender to another so that you are comparing "apples to apples" and the APR will help you do that.

The FEDs developed a method to try and help borrowers compare costs of loan as if it were a rate. In a sense, APR is a hypothetical rate. I am not sure the "FEDs" monitor lenders advertised APR, but we would expect lenders to include all nonrecurring fees in a mortgage loan in calculating their APR. Generally, when you get a good faith estimate it will be accurate. If there are no costs then the APR should be about the same as the rate. That often may happen in refinancing or be extremely close (i.e. paid for own appraisal.) Often with an FHA insured loan, even if there are no points charge on top of standard fees, the APR can be quite a bit higher than the actual rate received, because the upfront fee for mortgage insurance financed into the loan must be included in calculating the APR! Your payment will be based on your actual rate received, but the APR reflects how much costs were added onto your loan! Just because the APR is half a point higher than the actual rate does not make the payment that much higher! The payment difference is often very small...it is the cost difference that can seem large! I hope this adds to your understanding of APR for a mortgage loan.

The true interest rate is the note rate. The APR reflects certain extra fees and costs you pay at closing, and is always slightly higher than the note rate. Don't try to verify the calculations, unless you are a math whiz.

As others have suggested, the Note rate is the actual rate your paying on your loan.. Use any internet calculator to come up with a payment, and it should be identical. The Fed's got involved deeply in mortgage finance and say that certain fees you pay to obtain a mortgage are now considered a "pre paid finance charge" and those fees are added to the total interest paid over the term of the loan for APR calculations only. This can be very confusing, and the limited space we have here to explain will leave a lot of unanswered questions, so feel free to reach out to me and I would be happy to go into detail. Also, another thing to consider is that the rules for disclosing APR is different when you use a broker vs. a bank or mortgage bank. An apples to apples comparison with a broker vs. a bank, and the numbers can be exactly the same on both, but the brokers APR will be higher. For this reason, you should never rely on the APR when comparing loan scenarios. Seems unfair, and very confusing, but none the less, that's the way it is. I'm a Banker/Broker here in Scottsdale AZ and I only lend in Arizona. If you or someone you know is looking for financing options, feel free to contact me or pass along my information. William J. Acres, Lender411's number ONE lender in Arizona. 480-287-5714 WilliamAcres.com