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What is APR?

APR stands for Annual Percentage Rate. The APR is designed to measure the "true cost of a loan." It attempts to create a level playing field for all lenders. It prevents lenders from advertising a low rate and hiding fees. The APR does NOT affect your monthly payments. Your monthly payments are a function of the interest rate and the length of the loan. If life were easy, all you would have to do is compare APRs from the lenders/brokers you are working with, then pick the easiest one and you would have the right loan. Right? Wrong!

The APR is a very confusing number! Even mortgage bankers and brokers admit it is confusing.  Unfortunately, different lenders calculate APRs differently. So a loan with a lower APR is not necessarily a better rate. The best way to compare loans in our opinion is to ask lenders to provide you with a good-faith estimate of their costs on the same type of program (e.g. 30-year fixed) at the same interest rate. Then delete all fees that are independent of the loan such as homeowners insurance, title fees, escrow fees, attorney fees, etc. Now add up all the loan fees. The lender that has lower loan fees has a cheaper loan than the lender with higher loan fees (assuming the lender is fully disclosing all of the fees you will pay at closing).