What is APRA guide to understanding Annual Percentage Rate.

Annual Percentage Rate (APR)

• Annual Rate charged for borrowing money.

• Expressed as a single percentage.

• Represents the ACTUAL yearly costs of the borrowed funds over the term of the loan.

• Includes any fees or additional costs associated

Note Rate vs. APR• Note Rate or Interest Rate is the

cost of borrowing the PRINCIPAL loan amount.

• APR is a BROADER measure of the cost of your mortgage because it reflects the interest rate as well as other associated costs

Why have both?• Shopping for loans can be tricky• Which is better? 4.25% fixed

rate with no closing costs or a 4.0% fixed rate with $7500 in closings costs?

• APR will help you “shop” for the cheapest costing loan and compare loans that may seem very similar

What is most important to you?

• If you want the LOWEST payment than you should focus solely on INTEREST RATE

• If you want the least expensive loan, then you should focus solely on APR

• If you want a low payment and low costs then you want to compare similar rate loans and their associated APR

Why is time horizon more important than APR?

• APR spreads your closing costs over the term of the loan (30 yrs) but the value of the APR is not optimal if you are not going to be in your loan for 30 yrs

• Do you know anyone that made a full 30 yrs of mortgage payments? NO!

Lets Summarize• APR has been moved to the very back last

page of the NEW Closing Disclosure that replaced the Truth in Lending

• APR is not as important perhaps as it was once thought due to how often we refinance, sell, or move homes

• APR can be helpful in comparing different competing loan offers

• Determine the most important thing to you, the lowest payment or the lowest cost?

Thank you.