Anytime an advertisement for a home or a home loan contains certain words, phrases or amounts, they “trigger” the requirement to also furnish the annual percentage rate (APR).
Unlike the artwork with this article, the APR should never be blurry, it should be crisp and distinct.
For example if the advertisement or posting has a statement that the home is available for 10% down or can be bought on a 30 year or 360 month loan, or quotes a monthly payment or an interest rate, then the APR is also required to be shown.
Additionally, the APR must be as big and as prevalent as the interest rate, in other words, it can’t be hidden in the footnote. Annual percentage rates are a way of comparing one loan against another and the expression of the APR includes the fees that are considered finance charges in the rate.
If a loan has mortgage insurance, for instance, the APR will be higher than a comparable loan (same interest rate and same fees) because mortgage insurance is considered a finance charge. The same goes with some of the fees in a mortgage, such as origination fee, discount points, prepaid interest and a variety of other fees.
Interestingly, it can be that an APR is lower on a loan with discount fees than a higher rate loan without discount fees, but careful consideration should be taken to determine if it is in the borrower’s best interest to pay for the discount fees to get the lower interest rate. This can be accomplished though a “fee over time” calculation and will take into consideration how long the loan will be in existence.
About the author: Fred Chamberlin is a senior loan officer with Guild Mortgage Company in Oak Harbor. He has been in the mortgage origination business for over 20 years and in the lending business for over 30 and authors a number of mortgage related blogs.