Question:

Is the annual percentage rate (APR) enough to compare mortgage loans?

Answer:

Annual percentage rate (APR) can be indeed useful in comparing mortgage loans, and particularly the costs of the loans.

Lenders are required to state the APR of the loan they offer and it allows you to see the costs of the loan presented as a percentage. For example, if it is stated that your loan has a 9% rate, this means that you will have to pay $9 for every $100 you borrow annually. Thus, if everything else was equal, you would know that you simply have to choose the loan with the lowest APR.

However, when it comes to mortgage loans, there are so many other numbers involved and so many factors to consider. APR does not provide only the interest cost of the mortgage. It may include closing costs, discount points, loan origination fees, other processing fees, and private mortgage insurance. On the other hand, it may also leave some important fees out of the picture.

With so many fees and charges that may or may not be included in the APR quote you are given, you should take a really close look at every APR in order to decide whether you are getting a good deal.

To conclude, annual percentage rate should not be the only factor you look at when you judge the quality of your mortgage loan or when you compare loans offered by different lenders. It is a good starting step but you should look at every single charge and expense related to the compared loans in order to make the right informed choice.

Mortgage rates hit their lowest since 1955. Ask the home loan experts we recommend Quicken Loans how to take advantage of them.
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