The A.P.R. is believed to provide a better overview of what you’ll pay each month, but according to some mortgage experts it’s really not a true cost of credit. Often it includes costs such as origination fees, loan processing fees, and factors in the cost of points—the money you shell out to pay down the regular interest rate. As these upfront costs increase, so does your A.P.R., to the tune of half a percentage point or more over the basic interest rate.
It’s also important to know that the A.P.R. doesn’t include third-party costs you’ll have to pay for credit checks, surveys, inspection, and title insurance. It also does not capture total costs for adjustable-rate mortgages.
And if you’re going to sell or refinance your property in five to seven years after purchase, you shouldn’t necessarily choose your loan based on the lowest A.P.R. quoted. Here’s why. The A.P.R. for a thirty-year loan spreads interest out over the whole 30 years. But if you sell after five years, you’ve only spread the financing over those five years, so the A.P.R. is actually higher. You really need to crunch the numbers ahead of time.
There is a new Consumer Financial Protection Bureau that will look into mandating an “all-in” definition of finance charges when calculating the A.P.R. But until that happens, use all the information you can get about how a lender ends up with the A.P.R. number they quote to you. Then you’ll be able to make the best deal for your budget.
Contact me, Mynor Herrera, today for expert help buying or selling in the DC, MD, & VA areas! I also specialize in Bethesda and Chevy Chase, as well as the sub-divisions of Rosemary Hills, Rock Creek Forest, East Bethesda & Whitehall Condominium.
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