Arizona Refinance: Don't Rely on Mortgage APR

Many of our Arizona refinance clients are confused about how APR applies to their home mortgage.

They are not the only ones who are confused. Many Arizona mortgage lenders don't fully understand it either. Overall the APR is a very confusing term even though every mortgage lender is required by law to disclose it when quoting mortage rates.

Here's a summary of what APR means as applied to a phoenix mortgage.

The annual percentage rate (APR) is an interest rate that does not affect the actual mortgage rate. The APR is supposed to be used to compare how loan programs differ among various lenders. The Federal Truth in Lending law requires mortgage companies to disclose the APR when they advertise a rate. Typically the APR is found next to the rate.

Remember, the APR does NOT affect your monthly payments. Monthly payments depend upon the mortgage interest rate and the length of your mortgage term.

The APR is meant to give you the "true cost of a mortgage" and the law was supposed to establish common basis for comparison so that az mortgage lenders could not advertise a low mortgage rate and then hide fees that would drive up the overall cost of the loan.

Theoretically, for a Phoenix mortgage you should be able to compare APRs from different mortgage brokers and then choose the lowest rate. Sounds like that makes it easy to find the best loan, doesn't it?

Unfortunately, mortgage lenders don't calculate APRs the same because the federal rules that make it a requirement to calculate APR are not clear. To make matters worse, many mortgage brokers do not even know what charges are included in their APR quotes because they rely upon computers to generate the APRs.

A better way than using APR to compare loans is to request a good-faith estimate of a mortgage broker's costs on a Phoenix refinancefor the same type of mortgage program, and at the same interest rate. Next, remove all the fees from the GFE associated with homeowners insurance, title fees, escrow fees, attorney fees, etc. These fees should all be the same. Next figure out what the remaining loan fees are for each mortgage lender. With all things being equal, the mortgage broker with the lowest loan fees for a mortgage in Az is your best bet.

As a general guideline, the following fees are usually used to calculate APR: discount points, origination points and fees, pre-paid interest, loan-processing fee, underwriting fee, document-preparation fee, and private mortgage-insurance.

Sometimes loan application fee and credit life insurance premiums are also included as part of the APR calculation.

Here are the fees normally NOT included in the APR calculation, and you should be able to deduct these fees from the GFE to make a mortgage-to-mortgage comparison as described above: title fees, escrow fees, lawyer fees, notary fees, document preparation fees, recording fees, transfer taxes, credit report charges, and appraisal fees.

Make sure that you don't make the mistake of comparing the APR of loans with differing terms. A loan with a shorter term will most likely have a lower interest rate, but the APR could be higher because the mortgage fees are spread over a shorter period of time.

In general, you can only use APRs as a rough guide to make a Scottsdale mortgage or a home mortgage in Phoenix comparison. Keep in mind that when it comes to mortgages, the APR is a complicated calculation that is not interpreted in the same manner by differing Arizona mortgage brokers. The only way to be sure that you are comparing apples-to-apples is to request a GFE from each mortgage lender and remove the fees that are controlled by the mortgage lender.