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Why is my APR so much higher than the interest rate

Frequent Contributor

Why is my APR so much higher than the interest rate

Chase is giving me 3.5% on my home loan to close next month.  Yet when I look at their Truth In Lending Disclosures, the APR is 4.454%.

Wells Fargo is giving me (I'm comparing loans before I pay and do the final app) 3.625%, but their APR is 4.5171%.

 

Even with daily compounding, I don't think it should be that high.  

What gives?

What I not understanding? 

My Wallet:
AMEX Platinum | Discover It $20.3k | Chase Sapphire Reserved $16k | Chase United $12k | AMEX SimplyCash Plus Business $11.6k | AMEX Schwab $9k | AMEX BCEP $8.2k | Citi Costco Anywhere Visa $8k | Chase Amazon Visa $8k | Chase Sapphire Preferred $7k | Chase Freedom $5k | Citi Simplicity $5k | Paypal Extras Platinum $5k | Wells Fargo $5k | Citi Best Buy $4.2k | Citi Visa Signature $3k | Care Credit $3k
Message 1 of 17
16 REPLIES
Frequent Contributor

Re: Why is my APR so much higher than the interest rate

I would like to know as well.


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10/17/16 EQ 632; TU 656; EX 647
Message 2 of 17
Frequent Contributor

Re: Why is my APR so much higher than the interest rate

This is an FHA loan 30 year fixes, btw.

My Wallet:
AMEX Platinum | Discover It $20.3k | Chase Sapphire Reserved $16k | Chase United $12k | AMEX SimplyCash Plus Business $11.6k | AMEX Schwab $9k | AMEX BCEP $8.2k | Citi Costco Anywhere Visa $8k | Chase Amazon Visa $8k | Chase Sapphire Preferred $7k | Chase Freedom $5k | Citi Simplicity $5k | Paypal Extras Platinum $5k | Wells Fargo $5k | Citi Best Buy $4.2k | Citi Visa Signature $3k | Care Credit $3k
Message 3 of 17
Valued Contributor

Re: Why is my APR so much higher than the interest rate

Ignore the APR, it is meaningless just pay attention to the rate and your MI and other fees.

Message 4 of 17
Established Member

Re: Why is my APR so much higher than the interest rate

Message 5 of 17
Established Contributor

Re: Why is my APR so much higher than the interest rate

APR does matter.  It helps you figure out which loan is cheapest when comparing multiple loans from different lenders and or rates with points and such.


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Message 6 of 17
Established Member

Re: Why is my APR so much higher than the interest rate

Don't confuse APR with interest rate. Your interest rate is simply the interest based off of the principal. The apr is a reflection of the total cost of the loan, including fees and mortgage insurance. APR seems to matter a lot more with conventional loans but with FHA loans, all the costs are pretty uniform from bank to bank so it's less important to look at. FHA interest rates will vary bank to bank (in a smaller range than conventional) and the apr will be different to reflect different interest rates but you won't find 2 banks offering the same FHA interest rate with completely different apr's.

 

apr ≠ interest


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Message 7 of 17
Moderator

Re: Why is my APR so much higher than the interest rate

Actually I have seen the cost vary tremendously from lender to lender on FHA loans.

 

You are right that the APR reflects the cost of the loan. Each lender has their own charges and fees. The new HUD is supposed to keep the lenders from quoting low costs in the beginning and jacking up the fees at closing.

 

So yes, the APR matters. It is supposed to make it easier for the consumer to compare charges and fees on each of the loans.

Message 8 of 17
Contributor

Re: Why is my APR so much higher than the interest rate

I was wondering the same thing..

 

My rate is 3.75% (not locked yet), and the APR is 5.018% ... (seems high)..

30yr FHA, 3.5% down payment...

 

Message 9 of 17
New Visitor

Re: Why is my APR so much higher than the interest rate

I agree, most people do t realize that the APR reflects junk fees banks throw into your loan. It is IMPORTANT!!!
Message 10 of 17