Title:
Annual Percentage
Rate (APR): Magical Number or Myth When Shopping For Mortgage Refinancing Or
Second Mortgage Loans?
Word Count:
435
Summary:
Analyzing APR
during mortgage refinancing or second mortgage loan shopping can be a very
tricky proposition. There are certain
questions you need to ask your mortgage lender to determine the accuracy of
your mortgage quotes.
Keywords:
mortgage
refinancing, mortgage company, mortgage apr, interest rate, mortgage lender,
second mortgage
Article Body:
Analyzing APR
during mortgage refinancing or second mortgage loan shopping can be a very
tricky proposition. “Many people have
come to believe that a loans APR, or "Annual Percentage Rate", is the
single most important factor in comparing mortgage loans. However, this is rarely the case, especially
in today's marketplace,” explains Bob Peckenpaugh, Manager of CFIC Home
Mortgage.
Annual Percentage Rate is defined as "the cost of consumer credit as a
percentage spread out over the term of the loan.” Most consumers have no idea what makes up
this elusive number. APR is a valuable
tool in comparing various mortgage loan programs, but it should never be relied
upon as the sole determining factor in choosing a loan, for the following
reasons:
1) Not all closing costs are calculated
within the APR uniformly. According to
Peckenpaugh, “There is a huge variance among lenders, mortgage loan officers,
and even states on which fees they include in their APR when calculating the
loan. There is no standard among the
mortgage industry, let alone among competing mortgage companies.”
2) The costs themselves can be
manipulated within the loan. For
example, prepaid interest (the amount of pro-rated interest a consumer pays at
closing for interest which will be earned from that date until the end of the
month) can be represented as anywhere from 1 to 30 days, a potentially huge
difference, especially on larger mortgage refinancing loans.
3) Manipulation of the title fees. Ordinarily, the title company's settlement,
or closing fee is an APR fee, while their title insurance cost is not. Peckenpaugh explains, “Recently, in order to
minimize the effect to the APR, title companies began simply decreasing their
closing fee, while subsequently increasing their title insurance fee by the
same amount, thereby reducing the APR.”
4) Lack of industry awareness of what
is accurate. Most mortgage loan or
refinancing officers do not intentionally try to mislead, but inaccurate
information could result in the consumer making a poor decision.
As opposed to APR, consumers would be better served by asking the following
simple questions.
1) What is the mortgage interest
rate?
2) What is the total mortgage loan
amount?
3) What is the monthly mortgage payment
(principal and interest)?
4) How much are the closing
costs?
Generally, a written estimate covering all of the above can be generated by the
mortgage loan-refinancing officer and provided to you in the form of a
"Good Faith Estimate" and/or a "Truth In Lending
Statement". Then, you can compare
these documents between mortgage lenders in order to determine the authenticity
and accuracy of your quotes. For further
mortgage financing or refinancing information, contact Bob Peckenpaugh,
Manager, CFIC Home Mortgage, at 1-800-943-9472.