The Annual Percentage Rate (APR) is a way to compare the costs of a mortgage loan. Isn't it? Well, that's what it's supposed to do. The purpose is to provide you with a nice standard for comparing the percentage cost from one loan to another. Does it work? Kind of. Is it a reliable means of truly comparing a cost for a loan? Yes, it can be but it's usually not. Really.
OK, what kind of double talk crazy mumbo jumbo is this? Well, it is a US Government standard so it's just got to be the more solid than all of the gold in Ft. Knox, right? Oh yeah, there's not as much gold there as we thought, so never mind about that. Anyway....
Why use APR then?
Loans can be confusing. Slick lenders (Gasp! There aren't any of those are there?) can quote a lot of different numbers that mean different things. Why, that sounds like a deliberate attempt to confuse people! You think? In an order to reduce confusion, the US Government passed the Truth in Lending Act (TILA). We love our acronyms. TILA hasn't fixed this. Unscrupulous Lenders can (and sadly do) manipulate the numbers in their favor to talk you into their loans. Why Earl, after all....ain't their APR lesser than the other un?
One of the provisions of the TILA is that lenders are required to quote the APR to potential borrowers. I am particularly fond of the fact that something so important has the word "truth" in it; brought to you by the very business who provides very little of it on occasion. OK, to be fair, most of us are 100% above-board, honest individuals who want the same thing you do. Honesty, Fairness. The TRUTH.
If all lenders quoted the APR per TILA rules it would be a fair and consistent yardstick of the true cost of a loan. Unfortunately...all things are not always equal. To further confuse matters, the APR can include more than just the interest cost of a loan. On a mortgage, the APR might include Private Mortgage Insurance, processing fees, and discount points. There are other fees and charges that may or may not be included in a given APR quote....based on lender "interpretation" of how they want the APR to look. Well now hold on there just a minute, missy. Is that there legal? Uh.....no, it isn't. Well then, how do lenders get away with that? You see, Jimmy; there's a big difference between making a law and enforcing a law. As we all know.
Therefore, comparing one APR from one lender to another is about as reliable as your Doctor getting you from the front waiting room to the little waiting room, and then into the exam room on time. Practically impossible. Or, when the cable guy says he'll be there between noon and 5, you might as well plan on about 5:30, the next day. Sorry, I digressed there.
Point is, you can’t simply rely on an APR quote alone to evaluate a loan. The cost of a loan is mostly about cost over time. How much will a loan cost based on how long you will have the loan? If you want somewhat of a fairly understandable explanation of how you know you're getting a fair loan, here's some yay-hoo attempting to provide an explanation: http://mijoymortgage55.blogspot.com/p/video-library.html. Check out the last video titled: "Are You Getting A Fair Loan?" Or, feel free to watch all of them if you like pain.
And in the event that none of this makes sense to you, feel free to contact me directly and I can further confuse you...or something like that. Until next time....
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