APR is an acronym for Annual Percentage Rate. It’s a government-mandated calculation meant to simplify the comparison of mortgage options. It is probably the most misunderstood number at any closing or with any application.

A loan’s APR can always be found in the top-left corner of the Federal Truth-In-Lending Disclosure.

Because APR is expressed as a percentage, many people confuse it for the loan’s interest rate. It’s not. APR represents an estimate of the total cost of borrowing over the life of a loan. “Interest rate” is the basis for monthly mortgage repayments. APR has nothing to do with your payment.

The concept of the APR is to allows consumers to make an “apples-to-apples” comparison between loan products.

As an example, a 5.000 percent mortgage with origination points and fees will almost certainly have a higher APR than a 5.500 percent mortgage with *zero* fees. In this sense, APR can help a borrower determine which loan is least costly long-term.

However, APR is not without its shortcomings.

First, different banks includes different fees into their APR calculations. By definition, this spoils APR as a choose-between-lenders, apples-to-apples comparison method.

And, second, when calculating APR, “life of the loan” is assumed to be full-term. When a 30-year mortgage pays off in 7 years or fewer — as most of them do — APR comparisons are rendered moot. For Adjustable Rate Mortgages, or ARM’s, the APR has to make an assumption as to what rates will do after they adjust – an impossible task that makes APR virtually useless to compare ARM loans.

In other words, APR is just *one *metric to compare mortgages — it’s not the *only *metric. The best way to compare your mortgage options is to review *all *the loan terms together and determine which is most suitable. We do this with the **Total Cost Analysis** report. The Total cost is simply the sum of the interest you will pay plus the closing costs you pay for a particular loan program. We give all of our clients a **Total Cost Report** when they are looking at loan options. In fact, we can even plug in ompeting offers into our software and show the Total Cost of a competitors program.

If your Lender can’t help you calculate the Total Cost of a loan choice, ask some tough question – they are telling you that they can’t tell you the cost of the product they are selling. Yikes! Do you really want to buy that?

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