Annual
Percentage Rate (APR)
 The Annual Percentage Rate
(APR) and the Annual Interest Rate are the two interest rates applied to
your loan. The Actual Rate is the annual interest rate you pay on your
loan (sometimes referred to as the "note rate"), and is the rate used to
calculate your monthly payments. The amount of interest you pay, as
determined by your Actual Rate, is only one of the costs associated with
your loan; there may be others.
The APR includes both your
interest and any additional costs or prepaid finance charges you might
pay, such as prepaid interest, private mortgage insurance, closing fees,
points, etc. Your APR represents the total cost of credit on a yearly
basis after all charges are taken into consideration. It will usually be
slightly higher than your Actual Rate because it includes these additional
items and assumes you will keep the loan to maturity.
When you get a mortgage, you
are charged two different rates--the annual percentage rate (APR) and the
interest rate. Understanding the difference between the two rates is
important.
Interest Rate
The interest rate is the
yearly rate a lender charges for permitting the borrower to use money for
a specific length of time. The rate is calculated by dividing the total
amount of interest charged by the loan amount. For example, if a lender
charges a customer $60 a year on a loan of $1000, then the interest rate
would be (60 � 1000) x 100% = 6%.
Annual Percentage Rate
Annual percentage rate (APR) is the annual interest rate you pay on your
loan and is the rate used to calculate your monthly payments. The amount
of interest you pay is only one of the costs associated with your loan;
there may be others.
Your APR includes both your
interest and any additional costs or prepaid finance charges you might pay
such as prepaid interest, private mortgage insurance, closing fees,
points, etc. It represents the total cost of credit on a yearly basis
after all charges are taken into consideration.
It will usually be slightly
higher than your interest rate because it includes these additional items
and assumes you will keep the loan to maturity.
The annual percentage rate on
a 30-year fixed-rate loan will show you the actual annual cost of your
loan if you make 360 payments and pay off the mortgage in full.
The APR does NOT
affect your monthly payments. Your monthly payments are a function of the
interest rate and the length of the loan.
Truth in Lending
This
form will explain how your finance changes are calculated. Below is a
reference for the most commonly asked questions pertaining to the "Truth
in Lending" statement.
|
ANNUAL PERCENTAGE RATE
The cost of your credit
at a yearly rate. |
FINANCE CHARGE
The dollar amount the
credit will cost you |
Amount Financed
The amount of credit
provided to you or on your behalf. |
Total of Payments
The amount you will have
paid after you have made all payments as scheduled. |
|
A
% |
$
B |
$
C |
$
D |
Q. What is a
Truth-in-Lending Disclosure and why do I receive it?
A. The Disclosure is designed to give you information about the costs of
your loan so that you may compare these costs with those of the other loan
programs or lenders.
Q. What is the ANNUAL PERCENTAGE RATE? (Box "A"
Above)
A. The Annual Percentage Rate (A.P.R.) is the cost of your credit
expressed as an annual rate. Because you may be paying loan discount
"points" and other "pre-paid" finance charges at closing, the A.P.R.
disclosure is often higher than the interest rate on your loan. This A.P.R.
can be compared to the A.P.R. on other loan programs to give you a
consistent means of comparing rates and programs.
Q. Why is the ANNUAL PERCENTAGE RATE different from the
interest rate for which I applied?
A. The A.P.R. is computed from the Amount Financed and is based on what
your proposed payments will be on the actual loan amount credited to you
at settlement. In a $50,000 loan with $2,000 Prepaid Finance Charges, a 30
year term and a fixed interest rate at 12%, the payments would be $514.31
(principal and interest). Since the A.P.R. is based on the Amount Financed
($48,000), while the payment is based on the actual loan amount given
($50,000), the A.P.R. (12.553%) is higher than the interest rate.
Q. What is the FINANCE CHARGE? (Box "B" Above)
A. The Finance Charge is the cost of credit expressed in dollars. It is
the total amount of
interest calculated at the interest rate over the life of the loan, plus
Prepaid Finance Charges and the total amount of any required mortgage
insurance charged over the life of the loan.
Q. What is
the AMOUNT FINANCED? (Box "C" Above)
A. The Amount Financed is the loan amount applied for, minus the Prepaid
Finance Charges. Prepaid Finance Charges include items paid at or before
settlement, such as loan origination, commitment or discount fees
("points"), adjusted interest, and initial mortgage insurance premium. The
Amount Financed is lower than the amount you applied for because it
represents a NET figure. If you applied for $50,000 and the Prepaid
Finance Charges total $2,000, the Amount Financed would be $48,000.
Q. Does
this mean I will get a smaller loan than I applied for?
A. No. if you loan is approved in the amount requested, you will receive
credit toward your home purchase or refinance for the full amount for
which you applied. In the example above, you would therefore receive a
$50,000, not a $48,000 loan.
Q. What
is the TOTAL OF PAYMENTS? (Box "D" Above)
A. This figure represents the total amount you will have paid if you make
the minimum required payments for the entire term of the loan. This
includes principal, interest and mortgage insurance premiums, but does not
include payments for real-estate taxes or property insurance premiums.
This figure is estimated on the Disclosure Statement and is estimated in
any adjustable rate transaction.
Q. My
Disclosure says that if I pay the loan off early, I will not be entitled
to a refund of part of the finance charge. What does this mean?
A. This means that you will be charged interest for the period of time
which you used the money loaned to you. Your prepaid finance charges are
generally NOT refundable, nor is any interest which has already been paid.
If you pay the loan off early, you should not have to pay the full amount
of the "finance charges" shown on the disclosure..
Q. What
is the Filing Fee?
A. The Filing Fee is an estimate of the cost of recording the legal
documents (mortgage, deed of trust, deed, etc.) connected with your
transaction. The fee will be charged at settlement; please do not send it
now.
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