| There's a wealth of information on the internet regarding Annual Percentage Rate, also known as APR. Annual percentage rate (APR) is a component of The Truth in Lending Act (TILA) of 1968. Wikipedia has a good explanation and background on APR. Here's the layman's explanation of APR. You - the consumer need some way to compare lenders. Some lenders have low interest rates and high fees, other lenders have a higher interest rate with fewer costs. So how do you compare lenders. The Federal Government came up with a formula that "blends" the closing costs with the interest rate. Understand that the APR rate is NOT the interest rate on the loan, but a COMPARISON INTEREST RATE. If the interest rate on the loan and the APR rate are the same, you do not have any closing costs. If however, the loan has closing costs, the APR rate will be higher. The higher the APR rate, the more closing costs (i.e. origination, discount, processing, underwriting, etc.). Having high closing costs (i.e. points) to "buy down" the interest rate is not necessarily bad. In fact, mathematically, paying points can actually reduce the total amount of interest that you will pay the lender over the life of the loan. Paying points or not, depends on your individual circumstances. Always consult with a finance professional regarding low and high closing costs loans. HUD. This calculator will not calculate APR, but will display the closing costs associated with the loan. A word of caution, always compare apples to apples. This calculator was designed to compare fixed rate conventional loans (loans underwritten to Fannie Mae and Freddie Mac). APR calculations are different for adjustable rate mortgages, FHA and VA mortgages. This calculator is only intended to give you a better understanding between the offered interest rate and APR rate. |
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