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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