Pacific Bay Lending
Friday, January 24, 2020
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Desmond Elder
Mortgage Advisor
CA Bureau of Real Estate #01350508
NMLS# 29360

 

Supervising Broker Pacific Bay Lending
CA Bureau of Real Estate #01874818
NMLS #318011

 

711 Grand Avenue, Suite 265
San Rafael, CA 94901
530.582.4238

 

Desmond@PacBayLend.com

 

tahoe truckee sacramento mortgage loan

 

www.NMLSconsumeraccess.org

 

Desmond Elder
Mortgage Advisor
CA Bureau of Real Estate #01350508
NMLS# 29360

 

Supervising Broker Pacific Bay Lending
CA Bureau of Real Estate #01874818
NMLS #318011

 

711 Grand Avenue, Suite 265
San Rafael, CA 94901
530.582.4238

 

Desmond@PacBayLend.com

 

tahoe truckee sacramento mortgage loan

 

www.NMLSconsumeraccess.org

   

Annual Percentage Rate (APR)

 

A tool used to compare loans across different loan programs is the Annual Percentage Rate (APR). The Federal Truth in Lending law requires mortgage companies to disclose the APR when they advertise a rate. It is designed to represent the true cost of the loan to the borrower, expressed in the form of a yearly rate. The purpose is to prevent lenders from hiding fees and up front costs behind low advertised interest rates.

One confusing aspect of APRs is that the APR on 15 year loans will carry a higher relative rate due to the fact that the points are amortized over the 15 year term rather than the 30 year term. When a Regulation Z (the mortgage company's disclosure of cost for the loan) is prepared for a buyer/borrower, the prepaid interest is also included in the APR calculation.

Even lenders admit it is confusing since it includes some, but not all, of the various fees and insurance premiums that accompany a mortgage. The rules for calculation of this number have not been clearly defined, so APRs vary from lender to lender and from loan to loan, depending on which types of fees and charges are included.

In addition, the APR model is flawed in that when a product is variable and tied to a market index, the index is assumed to never change. This obviously is an invalid assumption that can lead again to a number, which in fact can not be compared, from one quoting source to another.

Finally, the APR won't tell you anything about balloon payments and prepayment penalties or how long your rate is locked for. You can use APRs as a guideline to shop for loans, but you should not depend solely on the APR in choosing which loan is best for your needs.

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