Posted on: 27th Aug, 2009 07:50 am
What is the difference between initial interest and APR? On a 30 year FHA loan for 397k. Initial interest is 5.25% and APR is 5.997%. why the big difference? The discount points is .125%.
sd, what will show up in your annual percentage rate but not in your interest rate will be prepaid finance charges. for example, when you pay interest at closing, that's a prepaid finance charge; so is a point or points that you pay, such as the discount point. also included are some specific fees that are paid in connection with the loan.
since you obviously have received a truth in lending disclosure (how else would you know the apr?), you should have been apprised of the fees and charges that comprise these prepaid finance charges.
the apr also is dependent upon you making payments exactly as shown on that document. any variation will change the apr calculation. if you prepay, for example, at any time and in any amount, all those numbers are rendered inaccurate.
truth in lending is not designed to tell you the real, honest truth about a specific transaction; it was, at least partially, originally intended to allow you to shop lenders to see whose rate and apr were the most favorable. don't let the apr dissaude you from taking a good deal. all things being equal in general, apr calculations can differ slightly from one shop to the next as well.
since you obviously have received a truth in lending disclosure (how else would you know the apr?), you should have been apprised of the fees and charges that comprise these prepaid finance charges.
the apr also is dependent upon you making payments exactly as shown on that document. any variation will change the apr calculation. if you prepay, for example, at any time and in any amount, all those numbers are rendered inaccurate.
truth in lending is not designed to tell you the real, honest truth about a specific transaction; it was, at least partially, originally intended to allow you to shop lenders to see whose rate and apr were the most favorable. don't let the apr dissaude you from taking a good deal. all things being equal in general, apr calculations can differ slightly from one shop to the next as well.
The APR is from a "proposal" form I got from a mortgage agent. I'm still confused about it. Is APR only for the first year of the loan? And Interest rate is for every other year?
sd,
APR is the right method to compare the mortgage.
In US, it is mendatory for lender to declare APR because loans frequently are offered on different terms
APR is the right method to compare the mortgage.
In US, it is mendatory for lender to declare APR because loans frequently are offered on different terms
the apr is the cost of the loan over the life of the loan including the interest rate and some of the costs associated with doing the mortgage.
if you have any costs at all associated with the mortgage, logically the apr for a fixed rate mortgage is higher than the rate.
the apr must be disclosed by federal regulation so the average consumer can compare the mortgage between lenders as to rate and apr. i never met anyone who could do that very well. most borrowers can better just comapare rate and the actual costs.
the apr is not just for the first year. it is the cost of the loan over the life of the loan. if you were to refinance or sell the house in less than thirty years. the apr would actually be higher because the costs are spread over a lesser term.
if you have any costs at all associated with the mortgage, logically the apr for a fixed rate mortgage is higher than the rate.
the apr must be disclosed by federal regulation so the average consumer can compare the mortgage between lenders as to rate and apr. i never met anyone who could do that very well. most borrowers can better just comapare rate and the actual costs.
the apr is not just for the first year. it is the cost of the loan over the life of the loan. if you were to refinance or sell the house in less than thirty years. the apr would actually be higher because the costs are spread over a lesser term.
Does the APR I mentioned seem reasonable to you guys? Bankrate says the average APR in my area is 5.31% with 0 points. Should I go to another lender or is FHA pretty standard?
That woudl depends on facotors like your income, credit and ability to pay back
An APR of 5.997 with a rate of 5.25% is way too high.
I do not think an APR of 5.997 is even possible without the loan being a high cost loan--which is prohibited in most states.
To get to an APR of 5.997 would mean there are about $30,000 in APR costs and I have never seen that.
Is it FHA 30 Fixed or an ARM??
Costs could be pretty high in New York if mortgage tax is included, but, I do not think it is possible to be that high in any other state.
I would tend to believe there is a misprint someplace or a serious error in calculation.
I do not think an APR of 5.997 is even possible without the loan being a high cost loan--which is prohibited in most states.
To get to an APR of 5.997 would mean there are about $30,000 in APR costs and I have never seen that.
Is it FHA 30 Fixed or an ARM??
Costs could be pretty high in New York if mortgage tax is included, but, I do not think it is possible to be that high in any other state.
I would tend to believe there is a misprint someplace or a serious error in calculation.
FHA is pretty standard, but, that APR is not pretty standard.
You really need the Good Faith Estimate which lists all the costs of the mortgage from beginning to end. If any costs in the Good Faith Estimate is way too high, that will tell you why the APR is too high.
While the APR is confusing, I bet if you saw a list of all the costs, you would know if the loan makes sense.
You really need the Good Faith Estimate which lists all the costs of the mortgage from beginning to end. If any costs in the Good Faith Estimate is way too high, that will tell you why the APR is too high.
While the APR is confusing, I bet if you saw a list of all the costs, you would know if the loan makes sense.
Thanks! I thought the APR was high! But I didn't want to ask the mortgage agent without having some understanding of APRs.
IT's a fixed 30 yr FHA. Here are some of the big fees listed.
Mortgage tax = $4000
Owner's title insurance is $1800
Other title/settlement charges $500
Attorney fee: $650
Property tax reservers $6000
Hazard insurance $1000
But I thought I had to pay these fees in the closing. Why would that be part of the APR? Should I just be worrying about the monthly payments? It's $2200 a month for principle and interest. If you take into account, property tax, mortgage insurance and hazard insurance it is $3k a month. Does that sound right? Can I calculate the APR from that?
IT's a fixed 30 yr FHA. Here are some of the big fees listed.
Mortgage tax = $4000
Owner's title insurance is $1800
Other title/settlement charges $500
Attorney fee: $650
Property tax reservers $6000
Hazard insurance $1000
But I thought I had to pay these fees in the closing. Why would that be part of the APR? Should I just be worrying about the monthly payments? It's $2200 a month for principle and interest. If you take into account, property tax, mortgage insurance and hazard insurance it is $3k a month. Does that sound right? Can I calculate the APR from that?
Mortgage tax? What state is the property located in?
Title insurance is not included in the APR.
Property tax reserves are not included in the APR.
Hazard insurance is not included in the APR.
I still do not see anything that even approaches $30,000 in APR fees.
You can not calculate the APR from the figures you have. There are other things that are included in the APR--interim interest and monthly mortgage insurance premiums. But, even if you have those figures, I do not see any way to get an APR of 5.997%.
Title insurance is not included in the APR.
Property tax reserves are not included in the APR.
Hazard insurance is not included in the APR.
I still do not see anything that even approaches $30,000 in APR fees.
You can not calculate the APR from the figures you have. There are other things that are included in the APR--interim interest and monthly mortgage insurance premiums. But, even if you have those figures, I do not see any way to get an APR of 5.997%.
called the agent. He said he can't explain APR, its just the APR i end up paying after amortization. Felt dumb asking him the question, but I am still concerned. He wants me to get started on the paperwork and email him the information he needs.
Do I really need all that stuff (w2s, paychecks, disclosures) just for a pre approval?
On a seperate question he asked me if the seller really required a pre approval for me to make an offer. He is the professional and he is asking me!
I don't think he is a bad guy, but I wish I had more confidence in what was going on.
Do I really need all that stuff (w2s, paychecks, disclosures) just for a pre approval?
On a seperate question he asked me if the seller really required a pre approval for me to make an offer. He is the professional and he is asking me!
I don't think he is a bad guy, but I wish I had more confidence in what was going on.
If there is mortgage tax, then it is NY. The state charges 1%.
