Watch Video

Iwas discussing a refinance with a client the other day and she mentioned seeingan ad on a major website for a 30 year fixed rate loan with a rate of4.375%.  I told her that rate was way below the market rate of between4.75% and 5% and asked her about fees and points.  She told me there wasno mention of fees or points, and as you can see here that’s true, well sort ofanyway.  TheAPR or Annual Percentage Rate is displayed and that is the key to understandinghow to compare loans.

 Disclosingwhat is called the Annual Percentage Rate or APR was intended to give theconsumer a way to compare mortgage loan rates and costs between lenders and hasbeen required since the inception of Truth In Lending laws since 1968. Additional disclosure requirements were added in 1974 with the passage ofRESPA.

Disclosurerules were amended again with the recent implementation of the MortgageDisclosure Improvement Act of 2009. 

 Thetruth is, that only comparing the rate and APR is not perfect and should not berelied on solely when considering a mortgage loan.

 Now,back to my story.  Using an APRCalculator (which is available under Quick Links on our website, www.Bayareateam.com) I plugged in the numbers and found that in order to get theAPR disclosed in the ad, some $29,000 in additional fees are being added to theloan.  Also, in the small print the advertised rate is only good for loansup to $250,000. 

Thisis a case of where the APR is giving the right message, but my client wasshocked to learn that some $29,000 in fees and or points where being added toachieve this low rate.  Keep in mind there is no mention of points, justthe rate and the APR, which is all that is required by the law.

1. Remember, APR is supposed to HELP consumers, not confuse them. Clearly this lender is charging hefty fees or a combination of fees and points. This brings us to our next point ...
2. Points are tax deductible costs - most other fees are not. Charging high fees in lieu of points is not in the consumers best interest.
3. It’s common to see rates quoted with NO POINTS to make them look better to    consumers. However you have to know the total costs in fees and points to get the true picture.
4. APR is "pliable" - Certain fees are calculated into the APR calculation, others are not. Do not assume lenders don’t become “creative” with the "names" of fees to artificially lower their APR's.  I have a list of over 100 items that can be included in the APR calculation, however, the common names for fees that make up the APR include  processing, appraisal, underwriting, funding, mortgage insurance, admin fee, document preparation and of course points, to name a few. 
5. A good faith estimate must be given within three days of the application.  Be aware with the passage of the Mortgage Disclosure Improvement Act of 2009, lenders cannot charge  an application fee until after you have been provided a Good Faith Estimate.

Personally, the only fee my clientspay before the loan closes is the appraisal fee and that’s not until  theloan is approved and we are ready to lock the rate. To me, application fees arejust another deceptive way to lure a consumer in and tie them to the lender.

Numbers can be trickyand they can be used in downright deceiving ways at times.

That is why it isvital that you sit down and think your borrowing decisions through. You wouldbe well served by talking to an expert you can trust.  You can do theAnnual Percentage Rate calculation yourself on our website.  Look underQuick Links for the APR Calculator, which is visible when you open thepage.  Compare loans in different ways.