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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.

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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