An Overview of Mortgage APRs

Most Utahns gravitate to the interest rate when shopping around for mortgages, but they should actually be focusing on the annual percentage rate (APR). The former is misleading because it only pertains to the money that your lender charges in exchange for the funds that you need to buy a house. On the other hand, the APR refers to the interest and additional applicable fees that you have to pay one way or another. Any mortgage company in South Jordan and the rest of the Beehive State consider it the more accurate representation of the loan cost.

If you do not understand the APR, you cannot fully comprehend the real cost of your mortgage. While lenders openly advertise APRs, they do have limitations. With that in mind, here are caveats that you need to know:

They Do Not Always Include All Fees

There is no strict, universal rule as to which fees should be included in the APR computation. Lenders calculate APRs differently, making it trickier to draw straightforward comparisons.

To paint the complete picture, you might need to use an APR calculator and do the math yourself. Ask your mortgage company about all specific costs (whether charged by them or a third party) applicable to your chosen loan product, and then crunch the numbers yourself.

They Assume That You Will Keep the Loan Until It Matures

The APR is calculated under the assumption that you will hold onto your mortgage for its full amortization. In other words, it will go up if you choose to refinance your loan at some point. The same thing will happen if you sell your home ahead of mortgage maturity and use the sale proceeds to settle your remaining balance.

They Can Be Deceiving When Attached to an ARM

Real estate agent and client calculating amount

The accuracy of APRs can head south when applied to adjustable-rate mortgages. Lenders can only use the current mortgage indexes at the time of calculation. These numbers fluctuate and are influenced by market forces out of everyone’s control. As you should with adjustable interest rates, do not put your faith in APRs on ARMs. Instead, use them to assess the affordability of different loans.

Mortgages can be complicated. Bankers cite many numbers that mean various things. They might involve specific costs that you are likely to pay. Alternatively, they might overlook those expenses in commercials and pamphlets.

Even with honest or completely transparent lenders, it can still be difficult to determine which loan is least costly. However, APR helps you make an accurate comparison of mortgages by considering each cost related to financing. With APR, you can decide which loan offer is ideal.

In the end, APRs are helpful pieces of information when comparing mortgages. However, you should take them with the grain of salt. Thinking about loans with a healthy amount of skepticism will help you select the best one for you. If you feel uncertain, you should conduct further research or seek the help of professionals. That way, you can avoid problems down the road.

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