What Is APR on Home Loan?
The annual percentage rate on a home loan is the annual cost of credit expressed as a percentage. When you are comparing loans between lenders, you have to consider more than just the interest rate, because fees and other costs can drive up the cost of the loan.
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The Facts
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The Truth in Lending Act requires lenders to disclose the APR. This prevents lenders from advertising low rates without disclosing hidden costs. According to Bankrate, the APR helps you determine whether it's worth it to pay more up front to get a lower rate.
What APR Includes
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The annual percentage rate takes into consideration the interest rate along with points, origination fees and private mortgage insurance.
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What It Doesn't Include
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Some lending costs are not included in the APR. Examples are appraisal fees, title fees, attorney fees and credit reporting fees. These fees may vary from one lender to the next.
Knowing Your APR
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Knowing your APR makes it easier for you to compare the costs of borrowing. See Resources for an online APR calculator offered by Mortgage Fit.
Considerations
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According to Lending Tree, the APR is more useful for fixed rate mortgages than for adjustable rate mortgages, because it is impossible to predict exactly how interest rates will change. APR assumes you will have your mortgage for the full term, but if you refinance in five to seven years, the cost of borrowing may be higher than the APR suggests.
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