Annual Percentage Rate APR Magical Number or Myth When Shopping For Mortgage Refinancing Or Second Mortgage Loans
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Annual Percentage Rate (APR): Myth or Miracle When Refinancing or Shopping for a Second Mortgage?
Understanding APR When Refinancing or Taking a Second Mortgage
Evaluating the APR, or Annual Percentage Rate, can be quite challenging when refinancing a mortgage or shopping for a second loan. While many believe that the APR is the ultimate factor in comparing mortgage options, this isn't always true, particularly in today's market, says Bob Peckenpaugh, Manager of CFIC Home Mortgage.
What is APR?
APR represents "the cost of consumer credit as a percentage over the loan term." While it's a useful tool for comparing different mortgage programs, relying solely on APR can be misleading for several reasons:
1. Inconsistent Closing Costs: Different lenders, loan officers, and states may not uniformly calculate closing costs within the APR. There's no industry standard, which means comparisons can be unreliable.
2. Cost Manipulation: Costs like prepaid interest can vary significantly. This amount is the interest paid at closing for the period until the end of the month, and it can range from 1 to 30 days, impacting larger refinancing loans significantly.
3. Title Fee Adjustments: Title companies sometimes decrease their closing fee and increase the title insurance fee, altering the APR without reducing actual costs.
4. Misleading Information: Many mortgage officers are not aware of inaccuracies, leading consumers to potentially poor decisions.
Key Questions to Ask
Instead of focusing solely on the APR, it's more effective to ask the following questions:
1. What is the mortgage interest rate?
2. What is the total loan amount?
3. What are the monthly payments (principal and interest)?
4. What are the closing costs?
Mortgage officers can provide a written estimate, often in the form of a "Good Faith Estimate" or "Truth In Lending Statement," which allows you to compare offers from different lenders to verify their accuracy. For further guidance, reach out to Bob Peckenpaugh, Manager, CFIC Home Mortgage, at 1-800-943-9472.
You can find the original non-AI version of this article here: Annual Percentage Rate APR Magical Number or Myth When Shopping For Mortgage Refinancing Or Second Mortgage Loans .
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