October 19th, 2015 10:37 AM by Jackie A. Graves
ideal interest rate and annual percentage rate (APR) on a #home loan can seem
like playing the old pea and shell game at the carnival. Except this time, the
stakes can add up to thousands of dollars on a mortgage depending on the term
of the mortgage and time the homeowner stays in the house. In fact, both the
APR and interest rates consumers receive in offers from lenders should be
evaluated down to the small print to find the best deal that matches the
borrower's financial outlook.
Let's start with the simple part and define the two major
costs involved in taking out a mortgage:
The #interest rate is expressed in percentage
points. It may be a fixed or variable. The estimate only identifies the rate.
It does not contain charges that may be rolled into the total cost of the loan.
A borrower seeking a lower monthly payment should pay attention to interest
rates when shopping for a loan.
As part of the federal Truth-in-Lending Act
(TILA), mortgage lenders are required to identify
the Annual Percentage Rate whenever
an interest rate is offered. However, lenders are not required to report all the charges rolled into the #mortgage.
By law, the APR must include the finance charge, the amount financed, brokerage
fees, points and the schedule for paying back the loan. If the borrower is more
concerned about the total cost of the loan, they will need to explore the
details of the APR.
According to the Consumer Financial Protection Bureau,
federal rules govern the limit that lenders can charge on fees and still offer
a "qualified mortgage". But there are no caps on the fees themselves.
Lenders are subsequently allowed to add fees as they see fit for the mortgage
package they're offering. Consumers should request a Good Faith Estimate (GFE)
from each lender that details all the costs associated with the mortgage. The
closing statement should also include the list of fees and should be examined
One way to think of #APR is that it includes costs added on
top of the amount financed. As a result, the APR is higher than the interest
rate, and the interest is charged on the full amount of the loan plus all other
costs. A low interest rate and hefty APR can blur the distinction between the
benefits, particularly if the homeowner expects to sell the home and move
before the loan is repaid.
The APR may include origination, appraisals, processing,
underwriting and document fees. Other charges can be assessed for notary, title
insurance, attorney fees, and credit history reviews. If mortgage insurance is
required, the consumer may save money by purchasing it on their own. In cases
where the borrower agrees to pay points to reduce the interest rate, those
charges must also be included in the offer or GFE.
LendingTree's LoanExplorer assists consumers in making informed
decisions on mortgages. In the Good Faith Estimate details in the explorer,
lenders send APR and payment estimates, including charges for mortgage
insurance. Completed offers may show flexibility in fees, insurance and closing
By Gabby Hyman – To view the original
article click here