Mortgage APR or the Annual Percentage Rate helps you in finding out the actual cost of the loan you are taking out. When you calculate the mortgage APR, there are various other factors that are taken into account. When you apply for mortgage, you will come across 2 numbers. They are the note rate that helps you in calculating the monthly payments. The other is the mortgage Annual Percentage Rate.

With the help of APR, you will be able to compare rates offered by the different lenders. The following costs or fees are included in the Annual Percentage Rate –

•Fees for underwriting
•Points that include discounts and origination points
•Fee for processing the loan
•Prepaid interest
•Fee for preparing document
•PMI or private mortgage insurance

Why shouldn’t mortgage APR be considered as the sole factor for comparing loans?
The Annual Percentage Rate assumes that there is zero inflation as a result of which the dollar value will not change for the next 10 to 20 years. However, this is a utopian concept, it does change with time. And when lenders calculate the mortgage Annual Percentage Rate, it is assumed that the borrower will not pay back the mortgage within the next few years. However, it may be so that the borrower is able to pay back the mortgage loan or at least the major portion of the loan much before the loan term ends. It has been observed in majority of the cases; borrowers tend to pay back their mortgages within 7 years to 9 years of the loan term. Read more »