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.

The mortgage APR doesn’t take into account value of money that is used in making payments to the lender as fees despite the fact that the same can be used to enjoy lower rates on a mortgage. And until the fees are not summed up with the closing costs, lenders will not be calculating the Annual Percentage Rate.

By Mortgagefit Community

Methods used to calculate the mortgage Annual Percentage Rate
Basically lenders make use of 4 different methods in calculating the mortgage Annual Percentage Rate. They are as follows –

1.Actuarial method
2.N-ratio method
3.Constant-ratio method
4.Direct-ratio method

Among the 4 methods employed in calculating the APR, the actuarial method and its related formula is used for finding out the mortgage APR.

Online mortgage APR calculator
You can calculate the mortgage APR by using online calculators. There are many websites that offer free mortgage calculators so that you can calculate the monthly mortgage payments, find out the total cost of the loan, compare monthly mortgage payments for different loan terms, calculate monthly mortgage payments if you are opting for ARM or FRM.

Blog RSS
Subscribe to Full Feed RSS or via Email subscriptions!
Subscribe to the post Comments Feed or Link to this post by Leaving a Trackback