What does APR Really Mean?
APR is a term that can be a bit confusing, but you should understand what it’s about if you are considering refinancing. Although we focus on people refinancing in Arizona (or AZ Refi as like to call it), the APR of any loan is very important, especially if you are looking to save money. This is a term that lenders use to disclose how much they well ultimately charge you, so let me explain what it’s all about.
The Annual Percentage Rate (APR) is required to be disclosed by law when providing any loan or financing option. It’s very useful for any potential borrower, because it allows you to compare lenders. The APR takes into account any fees and rate variations involved with an AZ Refi or purchase.
All things being equal, it is very useful to determine which loan would be most competitive when searching for an Arizona refinance deal. However, mortgage companies and other lenders tend to calculate APR differently. The rules provided to the lenders in calculating APR are a grey area.
Typically, the fees that are included in the AZ Refi APR calculation are:
Points (discount and origination), prepaid interest, processing fees, underwriting fees, preparation fees for any document and PMI (private mortgage insurance). So you can see why it can be difficult to compare like for like without a common calculation like APR to give you a clue.
Application fees for any loan and life insurance are sometimes inclusive in the APR calculation, so it’s worth asking the question of the lender as to what it included.
Another set of fees that are not usually inclusive in the AZ Refi APR calculation (but which you should definitely work into your personal loan calculations) are the following:
Title, Appraisal, Credit, Transfer Taxes, Recording, Home Inspections, Notary and Attorney fees, Escrow and document preparation.
APR does not give you an indication of the length of your rate lock. A lender with a 15 year loan rate lock may carry a lower APR than one with a 30 year lock.
It is not easy to compare loans with different loan lengths. The 15 year loan will carry a higher APR due to the fees amortized over a shorter loan term.
Always get a Good Faith Estimate (GFE) to compare loan cost when completing an AZ Refi (Arizona refinance) or purchase loan. This an estimate of your settlement charges and loan terms. APR can be easily manipulated due to some of the factors we have discussed. The GFE will break down the loan cost and true interest rates which is what your mortgage payment will be based on. Just be sure that the lenders are consistent with the loan terms provided on the GFE when you get to the closing table.
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