Juicy Estates: Mortgage Blog

Shop For A Mortgage? APR The Suckers Bet

 

So you have done a Little research and have determined via a variety of sources that appear to be reliable that the best way to select your mortgage is by finding the one “loan officer/sales-person” that will quote you the lowest “APR”.  Well you should prepare yourself because you are about to be lead down the primrose path just like countless unsuspecting home owners before you and it could cost you plenty.  What your “loan officer” isn’t telling you (because most don’t know) about APR is that it is a heavily flawed calculation that ignores the reality of how home owners in this country use their mortgages.  Stay with me here and by the time you finish reading this short post you will know more about APR than that “loan officer” on the other end of the phone.

How APR Is Calculated

In simple terms APR is calculated by taking the cost of obtaining the financing and spreading it out over the term of the loan, let say for example 30 years which is the most popular term for mortgages.  OK sounds reasonable…but what this ignores is that the average life span of a mortgage in the US is 4.2 years.  So while the APR on your mortgage is calculated on the full 30 year term you may only have this mortgage for a fraction of that time frame.  As a result if you paid discount points to get a lower rate (and thus a lower APR) you may have just wasted thousands of dollars depending on how long you keep the mortgage.

What Is Not Included In The APR Calculation

Many unscrupulous “loan officers/sales-persons” will engage in a shell game by not include certain fee’s in the APR calculation in an effort to make their offer appear more appealing.  Most often I have seen this done via an undisclosed “application fee” that is equal to 1 or 2% of the loan amount.

How To Properly Compare Financing Offers

Ask your certified mortgage planner to prepare a side by side ”Total Cost Estimate” of the offers you have received given various time frames.  The total cost given a specific time frame will illustrate what is the best financing structure to meet your individual needs.

This entry was posted on Sunday, November 2nd, 2008 at 1:00 pm and is filed under Home, Mortgage News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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