Why Annual Percentage Rate is Crap for Refinance Rate Shopping

If you’re shopping for the lowest refinance rates from today’s best lenders you may have noticed that quotes are listed by Annual Percentage Rate. APR was intended to help homeowners pick the least expensive home loan factoring in interest rates and closing costs. Should you trust APR when shopping for a home loan or will choosing the lowest ARP get you the highest out-of-pocket expenses?

What is Mortgage APR Anyway?

Lawmakers intended for Annual Percentage Rate to help you shop for the least expensive mortgage loan. Unfortunately APR is a dismal failure and you should never use it to shop for refinance rates. Let me say that again…NEVER USE APR WHEN SHOPPING FOR MORTGAGE RATES.

Annual Percentage Rate is the single most manipulated marketing tool used by lenders to sell you an overpriced home loan.

Annual Percentage Rate is a government concocted formula designed to show you the true cost of your mortgage loan. Basically you take your loan amount less closing costs factoring in your payments for the duration of the home loan to calculate APR. Most lenders quote mortgage rates alongside APR highlighting their Annual Percentage Rate.

It’s not uncommon to find refinance rates that include an APR lower than the interest rate. Lenders love to advertise their low APR home loans pushing higher closing costs on unknowing borrowers.

How Annual Percentage Rate Falls Short

The formula lenders use to calculate their Annual Percentage Rates makes a number of faulty assumptions.

  1. APR Assumes You’ll Keep Your Mortgage For 30 Years
  2. APR Assumes You’ll Never Pay Extra or Make Bi-Weekly Payments
  3. APR Assumes You’ll Never Refinance

Another problem with the Annual Percentage Rate is the way lenders factor in discount points. Points raise your out-of-pocket expenses as a way of buying down your mortgage rates. While discount points lower your refinance rates and payment amount they raise your out-of-pocket expenses at closing.

Lower refinance rates and payments from paying discount points creates an artificially lower Annual Percentage Rate meaning you’re getting the most expensive closing costs with that “low, low APR.”

If you’re inadvertently paying too much at closing you’re not going to be able to recoup your out-of-pocket expenses, including any unnecessary discount points, meaning you’re going to be losing money no matter how low your refinance rates.

How to Shop For The Lowest Refinance Rates

The best way to shop for a new home loan is to compare interest rates and fees on quotes that do not include discount points. This can be tricky because lenders cook up different names for many of their fees just to confuse rate shoppers. What is the most commonly overpaid fee among refinancing homeowners?

The mortgage loan origination fee is one of the most overpaid and easily negotiated fees you’ll pay at closing. Pay less for your origination fee while avoiding mortgage lender junk fees and you’ll get the maximum benefit from today’s low refinance rates.

Click Here For More Details…

You can learn more about getting the best deal on your next home loan from today’s best mortgage lenders by checking out my free Underground Mortgage Videos.

httpv://www.youtube.com/watch?v=be9md0A0_2c
  • Underground Mortgage Videos
Here’s a quick sample to get you started shopping for the lowest refinance rates and fees…

Online Refinance Rates Without Paying Junk Fees

How can you get the best online refinance without paying unnecessary discount points or lender junk fees? Online mortgage refinancing has become the most popular way of getting a new home loan; however, most of your neighbors overpaid thousands of dollars one way or another. Here’s what to expect from online refinance rates and several tips to avoid overpaying for your next home loan.

How to Get the Best Online Refinance

With the exception of a few community based credit unions, most lenders allow you to fill out applications online. This allows you to compare refinance rates and fees like the loan origination fee for a variety of banks and lenders.

The main advantage of an online refinance is the convenience of shopping from your home or work computer. You can quickly compare rates and fees without visiting an office or speaking to a pushy loan officer on the phone. One of the problems with online refinance rates is that it can be difficult to get an apples-to-apples comparison of mortgage rates and fees across different lenders.

Types of Online Mortgage Lenders

The most common type of mortgage lenders includes banks and community based credit unions like Wells Fargo and Navy Federal Credit Union. Large nationwide banks like Wells Fargo and Bank of America don’t always offer the most competitive fees for loan origination and may quote unnecessary discount points.

Mortgage Brokers arrange home loans for wholesale lenders and a good broker can quickly place you with a lender offering the lowest fees for a commission. The problem with using a broker for your online refinance is overpaying the broker’s commission will make it more difficult to break even recouping your out-of-pocket expenses. That being said, finding an honest mortgage broker can save you thousands of dollars from unnecessary lender fees at closing.

Unnecessary Mortgage Fees

There are a number of fees you’ll want to keep an out for on any mortgage. Refinance rates are at historically low levels yet many lenders quote interest rates that include discount points. Paying unnecessary points at closing raises your out-of-pocket expenses reducing the benefit you’re getting from that low interest rate.

Should you trust a lender’s Annual Percentage Rate? Lenders like to tote their low APR home loans which might not give you an accurate portrayal of their fees. It is possible to find online refinance loans with the lowest APR but the highest closing costs if the lender is quoting discount points. Additionally, because there is no standard for the way lenders treat fees getting apples-to-apples comparisons of different lenders can be next to impossible.

How to Shop for Your Next Home Loan

The best way to shop for an online refinance rate is to compare both refinance rates and fees without discount points. Community based credit unions are an excellent starting point as I’ve reviewed credit unions with origination fees as low as $700. Paying one percent for loan origination is a common unless you’re trading higher refinance rates for the lender paying your closing costs, meaning you’ll have higher monthly payments.

Click Here For More Details…

You can learn more about getting the best deal on your next home loan without paying unnecessary fees by checking out my free Underground Mortgage Videos.

httpv://www.youtube.com/watch?v=be9md0A0_2c
  • Underground Mortgage Videos
Here’s a quick sample to get you started with your online refinance without paying too much at closing…

Rate vs. APR

What’s the difference when comparing mortgage rate vs. APR and will choosing the wrong one cost you? When shopping for the lowest refinance rates you’ll always find two percentages advertised by the best mortgage lenders. Which one should you trust? Here are several tips before you refi to help you make an informed decision for your next home loan without leaving cash on the table.

Mortgage Rate vs. APR

Simply put, mortgage rate is the interest rate that your payments are based on each month. APR is a government concocted yearly percentage that factors in expenses such as your loan origination fee which intended to give you an idea of the total cost of a mortgage loan. As a tool for shopping for the best home loan can looking at rate vs. APR can help you avoid costly mortgage mistakes?

APR was intended to show you the true cost of your home loan.

Your APR tries to answer the question, if my mortgage is for x amount of dollars and it costs me this much to pay it off after 30 years, my total interest rate would have been this.

Rate vs. APR Limitations

The problem with comparing Rate vs. APR is that there are limitations based on a several assumptions made by the calculation. Comparing rate vs. APR is NOT the apples-to-apples comparison it was intended to be, not even close.

For one thing, Truth-in-Lending laws require banks and mortgage lenders to give the Truth-in-Lending disclosure; however, there are no standards for how it is calculated. Lenders all have their own calculation and not all the costs are included making the calculation worthless for any apples-to-apples comparisons.

The lender’s calculation also assumes you’ll keep the home loan for 30 years without refinancing, which considering the average homeowner refinances every four years is a big assumption. If you pay so much as $1 dollar extra towards the principal balance the calculation is also no longer valid.

APR for ARMs

Sometimes you’ll see lenders advertise ARM loans with an Annual Percentage Rate that is lower than the interest rate. Deceptive? Impossible? This happens when the calculation is made using the fully indexed ARM including the lender’s margin AFTER the loan resets. Indexes used on Adjustable Rate Mortgages are at historically low levels and the calculation in this case is making the assumption that the index will go down once the loan resets.

This is all hypothetical of course making the Rate vs APR comparison less than worthless for ARM home loans. The important lesson to learn is that Rate vs. APR is not the way to shop for a new home loan. The best way to compare to mortgage loans, especially when refinancing, is to look at interest rates compared to closing costs. Ignore the Truth-in-Lending disclosure completely when choosing from today’s best mortgage lenders and you can save yourself thousands of dollars.

Beware Unnecessary Fees When Refinancing

Did you know that the closing costs you pay are the most important aspect of your new home loan? Rather than getting caught up on comparing Rate vs. APR pay attention to unnecessary discount points or the origination fee when shopping for mortgage refinancing. The more you pay closing on your new home loan the longer it’s going to take you to break even recouping your out-of-pocket expenses. Overpaying at closing can even make it impossible to break even meaning you’re losing money no matter how low the refinance rates.

Common junk fees to be on the lookout for include application fees, processing fees, courier fees and the dreaded lock fee. Paying more than one percent for the loan origination fee is also considered junk as many community based credit unions offer zero or ridiculously low mortgage origination fees compared to the top mortgage lenders.

Paying unnecessary discount points is also a waste of money as interest rates are near 60-year lows; however, most lenders quote rates that include points. As you can see there’s more to think about when it comes to your next home loan than rate vs. APR. The good news is that free help is available to you for less than an hour of your time.

Click Here For More Details…

You can learn more about getting the best deal on your next home loan by avoiding lender junk fees and unnecessary points by checking out my free Underground Mortgage Videos.

httpv://www.youtube.com/watch?v=be9md0A0_2c
  • Underground Mortgage Videos
Here’s a quick sample to help you avoid lender junk fees and get the best deal on your next home mortgage…

How to Get the Best Daily Mortgage Rates

Are you searching for the lowest daily mortgage rates for your next home loan? Finding the lowest purchase and mortgage refinance rates from the best mortgage lenders isn’t difficult; however, avoiding unnecessary fees can be tricky. Here are several tips to help you get the lowest daily mortgage rates without paying unnecessary discount points or lender junk fees.

Shopping for the Lowest Daily Mortgage Rates

Most lenders like Amerisave publish daily mortgage rates online along with the Annual Percentage Rate (APR). Many homeowners rely on APR to compare daily mortgage rates across lenders; however, this is a common mistake that can cost you thousands of dollars. The reason Annual Percentage Rate is not going to give you apples-to-apples comparisons of different lenders is that it relies on a flawed calculation based on bad assumptions.

Beware Your Lender’s Annual Percentage Rate

Banks and mortgage lenders calculate APR by taking your loan size, factoring in prepaid items with closing costs and averaging the payoff over 30 years. Banks love to brag about their low APR mortgage loans. Home loans with the lowest APR will often show up first in the list of daily mortgage rates.

The problem with these “low APR” home loans is that they often have the highest out-of-pocket fees at closing. Here’s three assumptions lenders make rendering the Annual Percentage Rate all but useless:

  1. You will keep the mortgage for thirty years.
  2. You’ll never pay anything extra on the principal balance
  3. You’ll never sell or refinance your home again

One dirty trick lenders use to make their home loans more attractive is to load them up with discount points. If you compare two mortgage refinance rates, one with and one without points, the one with the points will have higher closing costs. Because this home loan’s interest rate is lower and spread out over thirty years, it will have a lower APR than the zero point mortgage.

If you’re choosing from a list of daily mortgage rates with the lowest APR you could be walking away with the highest closing costs.

This is what makes Annual Percentage Rate worthless unless you keep the same home loan for thirty years. Picking your next mortgage by APR will front-load your home loan with unnecessary fees.

How to Get the Lowest Daily Mortgage Rates

The best advice I can give you for finding the lowest purchase and refinance rates for your next home loan is to ignore APR completely. The better way to comparison shop is to look at interest rates compared to closing costs.

The more you pay at closing, including unnecessary discount points and junk fees, the more difficult it’s going to be recouping your out-of-pocket expenses. Mortgage rates are at near 60 year lows making discount points an unnecessary expense.

Don’t let a fast-talking loan officer dupe you into paying more than you need to at closing.

Click Here For More Details…

You can learn more about getting the lowest daily mortgage rates without paying lender junk fees by checking out my free Underground Mortgage Videos.

httpv://www.youtube.com/watch?v=be9md0A0_2c
  • Underground Mortgage Videos
Here’s a quick sample to get you on the right path to saving thousand on your next home loan…

Refinance Rates vs. APR: Beware Common Mortgage Mistakes

If you’re considering mortgage refinancing to take advantage of today’s low refinance rates, you might be shopping using the Annual Percentage Rate (APR) to compare offers from today’s best mortgage lenders. It’s a myth that you can rely on the APR when it comes to refinance rate shopping; it simply doesn’t work. It doesn’t matter if you’re considering traditional mortgage refinancing, FHA, VA, or even jumbo home loans, that Annual Percentage Rate is deceptive and relying on this figure can result in overpaying thousands of dollars. Here’s what you need to know to avoid this common mortgage refinancing mistake.

What is the Annual Percentage Rate (APR)?

Created by the government, the Annual Percentage Rate is intended to tell you the true cost of your mortgage, from the day you close until paying off your home loan. It is supposed to factor in the size of your mortgage, any prepaid items, closing costs and interest over the lifetime of your home loan expressed as a yearly percentage of your loan amount.

You’ll find the Annual Percentage Rate at the top of the Truth-in-Lending disclosure form. The law requires your lenders to disclose the home loan’s APR whenever giving you a quote. This law was intended to give homeowners better tools for making informed decisions when it comes to mortgage rate shopping; however, Federal Truth-in-Lending laws have been a dismal failure to his day.

If you’re looking for an apples-to-apples comparison of mortgage refinance offers across different lenders the APR is not the way to go. The problem with APR is that lenders manipulate the calculation based on their fictitious Good Faith Estimate to make their loan offers seem more attractive.

What’s Wrong With Your Bank’s APR?

One of the biggest flaws with Annual Percentage Rate is that the calculation is based on the assumption that you’ll keep the mortgage until the end of its term. The term length of your home loan is the amount of time you have to repay the mortgage. APR assumes you won’t sell or refinance before paying off your home. It also assumes you’ll only make your exact monthly payment and will never pay extra towards the principal balance.

If you ever refinance or pay a little more towards your mortgage balance the Annual Percentage Rate you used to choose the “best” offer is no longer valid. It also fails if you paid discount points when mortgage refinancing to buy down your interest rate. Points are a common ploy used by lenders to make their offers seem better than they really are.

Paying discount points on your refi only makes sense if you’re able to recoup the closing costs from your lower payment amount. If you sell or refinance again before breaking even on your out-of-pocket expenses you’re going to be losing money no matter how low your mortgage rates.

Even though you’re paying more at closing with discount points, because the interest rate will be lower, the APR on the more expensive home loan will also be lower.

This why the Annual Percentage Rate used by your bank is flawed, and doesn’t give you an apples-to-apples comparison when shopping for the best refinance companies. In fact, if you rely solely on APR you’ll wind up with a home loan with the highest out-of-pocket closing costs.

Another area where the APR fails is the third-party costs like attorney fees, title, and appraisal costs. These are subject to change on every mortgage refinance loan and are not part of the Annual Percentage Rate. Banks and lenders frequently low-ball these expenses to make their APRs seem more attractive. The Annual Percentage Rate also fails to take into consideration future rate increases on Adjustable Rate Mortgages.

How to Shop the Lowest Refinance Rates & Fees

The best way to shop for the best mortgage offer is to compare rates and all fees. Don’t rely only on the Good Faith Estimate but reconcile everything with the HUD-1 Settlement Statement. Don’t be afraid to challenge the fees you find in your loan documents. Administrative, application and courier fees are usually junk that can be avoided.

Click Here For More Details…

You can learn more about getting the lowest refinance rates from lenders like Amersiave and USAA Mortgage Rates by checking out my free Underground Mortgage Videos.

httpv://www.youtube.com/watch?v=be9md0A0_2c
  • Underground Mortgage Videos
Here’s a quick sample to get started finding shopping for today’s lowest refinance rates & fees…