What Does Mortgage APR Indicate?

Posted on December 2, 2009 by admin

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This post is written by Steven Parker. Steven Parker is a financial writer and contributor for the last five years. He specializes in mortgage and real estate industry and has written many articles on mortgage, reverse mortgage, loan modification, foreclosure and many more.

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Mortgage APR or Annual Percentage Rate helps you to assess the total cost of the loan in percentage. For instance, if your mortgage attracts a rate of 10%, it means that you will be required to shell out USD$10 for every USD$100 you borrow yearly. Borrowers usually try to get a mortgage loan that has the lowest APR.

Mortgage APR however doesn’t affect your monthly mortgage payments. This is because your monthly mortgage payments take into account the interest rate and not the mortgage APR.

What does mortgage APR include?

The APR includes the following in its calculations-

Pre-paid interests
Points
Underwriting fees
Loan processing fees etc.
Fees for preparing documents
Private mortgage insurance

In addition to the above, under certain circumstances, the following fees may be included too. They are –

Credit life insurance
Loan application fee

Fees excluded from APR calculation

The mortgage APR doesn’t take into account the following types of fees in its calculation-

Appraisal fees
Notary fees
Attorney fees
Transfer taxes
Fees from Escrow and Title
Credit Reporting fees
Recording fees
Home Inspection fees etc

In other words, the mortgage APR helps you to find out the amount you have to pay as closing cost. It is mandatory as per Federal Truth in Lending Laws that the lender has to disclose the mortgage APR to the borrower.

It is important that you compare the rates from lender to another. You can also compare the Annual Percentage Rate online. It helps you to shop around for the correct deal. It is also important to remember that getting a low mortgage APR doesn’t necessarily mean that you are getting a good deal. Read the fine print before signing the agreement when you opt for a mortgage.

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Serena Brown is broker and owner of Taylor-Brown Real Estate. She is the author of this blog. She has also co-authored a book entitled Should I Short Sale My Home. She has authored a e-book How to Sell My Home. She will be authoring a book on real estate investing by April of 2010 and several reports. She has dual degrees in Business Administration and Electronic Engineering Technology. She prides herself on being up to date on all trends, news, and education related to real estate to include short sale, loan modification, etc. She also makes sure her clients are abreast of how these changes will affect them financial. Therefore, stay tuned for great information in 2010.

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