If you want to understand the APR on a Mortgage Loan consider this simplistic explanation/example.
First, Forget that we are talking about a Mortgage.
Imagine that you are going to the Mall and purchasing a Suit or Dress. The Suit or Dress is on sale for $100.00. How much will the dress cost you?
The Suit or Dress will cost you more than $100.00 because of the Sales Taxes. (Here in Northern Ohio our sales tax are 7.50%, so the cost is $107.50) The extra "Sales Taxes" are Closing Costs when it comes to computing the APR.
Next consider most mortgage written today have some form of Mortgage Insurance. Using the Suit or Dress example, Once you buy the Suit or Dress, you will have Dry Cleaning Bills. These cleaning bills are like the Monthly Mortgage Insurance Premiums collected on Mortgage Loans.
So when you consider the cost of that Suit or Dress, the cost is not $100.00 it is some higher amount. This higher cost (Expressed as a Percentage Rate) is what The Regulation Z - APR Disclosure is all about.
I hope this explaination provides insite and helps you understand APR's.
Words of warning here. Comparing APR's are a good thing provided all quotes are using the same yardstick for Closing Costs and Reoccurring costs. This is not the case in the Mortgage Industry, some lenders include certain fees in their up-font costs (Sales Tax) while others do not include those fees. It is also very common that Internet Lenders (or Website Quotes) will not include the PMI Costs (Monthly Dry Cleaning) in their APR Calculations. Why do they do this??? It is called SALES!!!!! They want your business (aka your money).
SHOP LOCALwhen possible. Not trying to offend anyone, I have heard many people comment or complain that the local ABC store closed because the International XYZ company came to town and put them out of business. Remember that local ABC stores likely treated their employees better than the International XYZ company. You also likely received better service with them. The local ABC store also contributes more to your local economy. In most cases if a consumer does Shop and Compare they can Save if they choose the Local alternatives.
If you live in Northern Ohio consider visiting one of my informational websites
and then Call me for you Mortgage Needs.
I welcome any comments, suggestions or critiques on the explanations presented here.
Also opinion on the importance of shopping local will be appreciated and encouraged.
