What Is APR
APR = Annual Percentage Rate
The point of calculating APR is to let the borrowers know what the actual cost of their financing is in the form of a yearly rate.
APR factors in certain closing costs and fees associated with the loan, and spreads this total over the life of the loan along with the actual note rate.
The objective is to give borrowers a clearer picture of what their actual costs are, and this inhibits lenders from hiding fees or upfront costs behind interest rates in their advertising.
Your Mortgage Planner if it’s not me, should be able to answer questions about APR and the Truth-in-Lending Disclosure Statement (Reg Z), such as why the “amount financed” listed in Box C is not the same as the actual loan amount, and why the APR is higher than the interest rate on the loan in most cases.
The APR includes any charges payable directly or indirectly by the borrower and imposed directly by the creditor/lender as an incident to or a condition of the extension of credit. It does not include any charge of a type payable in a comparable cash transaction. Charges that are included in the APR calculation should be indicated as Prepaid Finance Charges (PFC) on the Good Faith Estimate. Please note that certain items such as Mortgage Insurance Premiums effect the APR calculation directly.
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