Mortgage Refinancing APR - What it Really Means

APR is a term that can be a bit confusing, especially as it is applied to Arizona mortgage refinancing. This is a term that lenders disclose to a potential borrower and here is what it entails.

The Annual Percentage Rate(APR) is required to be disclosed under the Federal Truth in Lending law when providing a rate. This rate is different than the note rate and allows a potential borrower to compare lenders. The APR takes into account any fees and rate variations involved with an Arizona refinance or purchase.

The APR has no bearing on your payments. The payments are affected by your loan note rate and term.

All things being equal, this would be a great tool to determine which loan program would be most competitive when searching for an Arizona mortgage refinance. However, mortgage companies tend to calculate APR differently. The rules provided to the lenders in calculating APR are a grey area.

Typically, the fees that are included in the APR calculation are:

Points(discount and origination),prepaid interest, processing and underwriting fees, document preparation fees and PMI(private mortgage insurance).

Loan app fees and life insurance are sometimes inclusive in the APR calculation.

Usually, these additional fees are not inclusive in the calculation:

Title, Appraisal, credit, transfer taxes, recording, home inspections, notary and attorney fees, escrow, and doc prep.

APR will not give you the length of your rate lock. A lender with a 15 day loan rate lock may carry a lower APR than one with a 30 day lock.

It is not easy to compare a 15 year loan APR with a 30 year loan APR. Usually the 15 year loan will carry a higher APR, even with a lower rate due to the fees amortizing over a shorter loan term.

Always get a good faith estimate to compare loan cost when completing an Arizona refinance or purchase loan. APR can be easily manipulated due to some of the factors we have discussed. The GFE will break down the loan cost and true interest rate which is what your mortgage payment will be based on. Just be sure that the lender is consistent with the loan terms provided on the GFE when you get to the closing table.