Annual Percentage Rate APR Shopping For Mortgage Refinancing Or Second Mortgage Loans

Annual Percentage Rate APR Shopping For Mortgage Refinancing Or Second Mortgage Loans

Annual Percentage Rate (APR): Magical Number or​ Myth When Shopping For Mortgage Refinancing Or Second Mortgage Loans?

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.

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