Slogan

Articles For Knowledge Sharing » Business-management » Finance-management » Property-investments » Comparing Mortgage Offers with APR

---

Comparing Mortgage Offers with APR

The Problem



Many home buyers don't understand the basic principles when reviewing numerous mortgage offers they receive, and for real estate agents and mortgage brokers, it can be easy to forget the complications one encounters in deciphering the right offer for them. It's a good idea to step back, take a moment, and help your clients walk through the process rather than leaving them to tackle all of that information on their own.



You can help them cut through the confusion and see the best deal, and sometimes this takes extra time. The idea is that this is not a race to the finish line, but a long-term commitment to helping home buyers make the best decision. Mortgage lenders deal with fees, points, and other loan terms on a regular basis, and it becomes second nature as a matter of the process, but all of that information can confuse and overwhelm an average home buyer.



Explaining the situation



As we all know, APR must be listed on the Truth-in-Lending statement to a client. To the average home buyer, it can be easy to misinterpret this number as the interest rate. Below is a general explanation of what APR is that may help enlighten clients when the numbers start pouring in. While APR isn't the only consideration, often it is the best gauge to weigh different offers against.



To the home buyer



The annual percentage rate, more commonly referred to as APR, combines the interest rate, lender fees, discount points, and term of the loan, or the duration, into one single number. This number is often confused with the interest rate, but it is much more and actually shows the actual cost to borrow money.



If we take two loans as an example, both worth $200,000 at five percent interest, let's assume the first loan has no fees or points to be paid. On the second loan, however, there are $$5,000 in fees and points that are included in the full amount that the borrower ultimately owes. In the second example, the borrower is actually receiving a loan of $195,000 with $5,000 in fees charged added at the beginning of the period.



When we calculate the cost of borrowing, we spread the $5,000 charge over the term of the loan that, in this case we'll say is 30 years. It rolls into the interest rate. With this calculation, the borrower is actually paying an annual rate of 5.218 percent. They are only borrowing $195,000 with $5,000 in fees, at an interest rate of 5%, so with this simple example, it can be easy to see the importance of APR in singling out the best loans.



Short versus long-term



One problem in using APR as a main focus point in determining the best loan rates is that it assumes that the mortgage will be held for the entire term. If a home buyer refinances before fully paying off the loan, then they won't have time to amortize the fees and this, in essence, raises the interest rate of their loan. When this is the case, when a client plans on refinancing or selling within 7-10 years, for example, then it's a good time to explain why choosing a loan with a higher interest rate and lower fees might be better for them.



As we all are quite aware, the loan process doesn't follow general conventional wisdom and while this information is second nature to most of us, it's important to not forget that home buyers generally view loans on interest alone, or at least as the primary focus. Many potential home buyers become frustrated and distrusting of mortgage lenders who try to guide them to a certain loan without clarifying the finer points.



With so many factors influencing home loans, breaking it down into the simplest form and explanation possible will smooth the transition from being a confused home buyer to an empowered homeowner.



David

Article Source: Articles For Knowledge Sharing

About the Author

David Reinholtz is a professional Mortgage expert in Real Estate Industry for the last twenty five years. David has personally trained thousands of loan officers, mortgage brokers, real estate agents and individuals through The Close More University Seminar Series, LoanOfficerSchool.com Classes , Correspondence and On Line Learning, and countless private engagements and training events throughout the country.

David is the Founder and CEO of LoanOfficerSchool.com, an approved education provider for The Conference of State Bank Supervisors and The National Mortgage Licensing Systems' (NMLS) required pre-licensing education and continuing education.

by: loanofficerschool

Html View | Print View Total views: 71 Word Count: 643 Date: Fri, 25 Jun 2010 - 0 comments

Publish/Share this article

To use this article on your site click here to get the HTML code |
Remember: The article body, title, author bio and links may not be changed or removed. By publishing this article, you agree to all the terms in our Terms of Service.


Rating: Not yet rated

--Choose-- 0 1 2 3 4 5

Comments

No comments posted.

Add Comment

You do not have permission to comment. If you log in, you may be able to comment.

More articles in this Category

1: Foremost Reverse Mortgage Disadvantages.
2: Real Estate: Property For Sale Barry's Bay Ontario
3: Why You Should Consider Investing in Condos to Meet Your Real Estate Needs
4: Commercial Real Estate Help That Is Easy To Understand
5: The Best Way To Obtain A Property For Sale In Atlanta
6: Property For Sale Atlanta: The Right Investment Nowadays
7: Sell Your Property With Success By Using These Ideas
8: Selecting the Best Apartment For Your Lifestyle
9: Five Luxury Homes In Hollywood
10: All You Have To Know About Mortgages
11: Find Good Use For These Real Estate Buying Tips
12: How to Select the Best Real Estate Agent - Follow This Simple Tips
13: Essential Real Estate Advice And Tips For Sellers
14: Your Real Estate Agent Will Be Able To Guide You Through The Home Loan Process
15: Rules that apply with Real Estate IRA/Self Directed IRA
16: What is President Obama's Making Home Affordable Program All About?
17: Real Estate USA one of the safest way for investment
18: The Qualifications Of A Great True Estate Agent
19: Techniques Concerning how to Sell Home Fast UK
20: Easy Jobs For Fixing Your Property