topic Re: Confusion with Rate and APR in Mortgage Loans

Confusion with Rate and APR

lorenzomia — Tue, 06 Aug 2013 21:44:04 GMT

I am about to apply for a mortgage.

I have 660 credit and good DTI ratios 28/34

Applying for a $339K 5% Conventional, I am getting an offer for Rate 5% / APR 6.634%

When I shared this numbers with a few friends, they were outraged at the large APR rate.

Looking at myFico.com calculators and online tools it tells me I should be getting 5.1% APR 5.6 ... or similar numbers.

Bottom line.. I don't understand what APR is, and if I am getting a good deal or not.

What should I know? What should I be looking for? What is an acceptable number?

Thank you.

Re: Confusion with Rate and APR

Anonymous — Tue, 06 Aug 2013 21:54:34 GMT

Hi ,APR is the true rate and includes fees and points. On a conventional loan APR should be really close to the interest rate. On FHA loan APR will include PMI also and is usually at least 1% higher compared with the interest rate. Your APR may include morgage insurance but not sure.

Re: Confusion with Rate and APR

lorenzomia — Tue, 06 Aug 2013 23:20:22 GMT

So if my PMI is high, my APR will be higher?

I am being quoted a high PMI because of my score. I did some research, my PMI is being quoted at $320. If I had 700 credit score, my PMI would be $200.

Then in theory, if I pay down to 78% and remove my PMI my APR basically changes to a lower APR midway into the loan?

Re: Confusion with Rate and APR

Anonymous — Tue, 06 Aug 2013 23:33:01 GMT

Well a better way to look at it is with the removal of the PMI the APR will be very close to the quoted rate of the loan. Nobody knows where interest rates might be by the time you get to 78% LTV. My friend keeps reminding me that in the late 80's interest rates were 15% +. I got a rate of 4.25% in 01/11 and thought that was incredible, until I was able to refinance in a new 30 yr. fixed at 3.0% 20 months later.

Will interest rates be at 3% or 12% when you are ready to drop PMI? No one can guarantee.

Re: Confusion with Rate and APR

frugalQ — Wed, 07 Aug 2013 00:26:32 GMT

I thought interest rate doesn't matter when removing PMI...because its not a refinance if you meet their requirements to remove.

Re: Confusion with Rate and APR

Anonymous — Wed, 07 Aug 2013 04:13:20 GMT

You will have PMI dropped once you meet requirements with conventional, with Fha loan it stays unless you refinance to conventional.

Re: Confusion with Rate and APR

lorenzomia — Wed, 07 Aug 2013 05:12:41 GMT

I understand that'll question is if under conventional my omission requirements change... Does my apr changes to a lower number?

Focus of the question is why the large spread between rate 5 and apr 6.62.

Re: Confusion with Rate and APR

lorenzomia — Wed, 07 Aug 2013 05:47:56 GMT

I apologixe, I was typing from my phone.

The main question is:

Why are they offering me such a big spread between rate and APR?

Is the APR calculated with my PMI? What other numbers come into play?

If I am doing a conventional 5% loan and my PMI requirements change because I reduce my balance to 78% and my PMI is dropped, does this mean my actual APR at that time is recalculated?

What is the exact formula to calculate APR? What numbers are included? Taxes? Insurance? PMI? Obama's weight in Kgs?

Is 5% RATE / 6.62% APR a "normal" quote for a 5% Down 30 Year Conventional loan for an individual with 650 FICO?

Thank you.

Re: Confusion with Rate and APR

lorenzomia — Wed, 07 Aug 2013 05:53:15 GMT

An example is worth, .. well its worth something.

$1,000 loan at 10% interest = $1,100 after one year. I understand this as a 10% RATE.

How much is the APR on the above loan?

Is my following theory correct?

$1,000 loan at 10% plus a $10 dollar monthly fee for insurance = $1,000 + $100 + $120 = $1,220 = 10% RATE / 22% APR?

Re: Confusion with Rate and APR

frugalQ — Wed, 07 Aug 2013 12:53:24 GMT

I was watching a local home show, and a mortgage officer was discussing the difference between int rate and APR. she explained that APR is the avg rate after you include some of the fees which you pay at closing. The greater the difference between int rate and APR, the higher the fees. This is a good tool for when you are shopping for a loan.

She also explained that once you close, APR is no longer valid because your mortgage amount is dependent on int rate, not APR.

Now, I don't know if PMI is included in APR, but if I had to guess, I would think not, just as taxes and insurance is probably not included....because these things are not associated with the costs of the loan. But, any mortgage company should be able to tell you which fees are included to calculate APR.

Re: Confusion with Rate and APR

frugalQ — Wed, 07 Aug 2013 12:54:56 GMT

Here's the link to the article from the show I watched.

http://www.atlantarealestateforum.com/academy-mortgage-explains-aprs-and-interest-rates-80067/

Re: Confusion with Rate and APR

Anonymous — Wed, 07 Aug 2013 14:15:09 GMT

APR or Yearly Amount Rate shows the true price of a home loan. APR does include the PMI or Private House loan Insurance coverage apart from the loan-processing fee, underwriting fee, papers preparation fee and other expenditures

I got this from here:

http://smart-gfe-calculator27.tumblr.com/post/13847136324/mortgage-refinancing-understanding-the-good-faith

APR= interest rate+PMI+any fees you paid at closing