Florida Mortgage 101: APR and What it Means

In an attempt to keep Florida mortgage terms as clear as I can, I wanted to provide a basic definition of APR, or Annual Percentage Rate.

Pu simply, APR is a government-mandated calculation meant to simplify the comparison of your mortgage options.

The APR on your Florida mortgage can always be found in the top-left corner of the Federal Truth-In-Lending Disclosure.

The Difference Between APR and Interest Rate

Because APR is expressed as a percentage, many people confuse it for the loan’s interest rate.  It’s not.  APR represents the total cost of borrowing over the life of a loan.  “Interest rate” is the basis for monthly mortgage repayments.

The main advantage of APR is that it allows an “apples-to-apples” comparison between loan products.

As an example, a 5.000 percent Florida mortgage with origination points and fees will almost certainly have a higher APR than a 5.500 percent mortgage with zero fees.  In this sense, APR can help a borrower determine which loan is least costly in the long-term.

However, APR is not without its shortcomings.

First, different banks includes different fees into their APR calculations.  By definition, this spoils APR as a choose-between-lenders, apples-to-apples comparison method.

And, second, when calculating APR, “life of the loan” is assumed to be full-term.  When a 30-year mortgage pays off in 7 years or fewer — as most of them do — APR comparisons are rendered moot.

In other words, APR is just one metric to compare mortgages — it’s not the only metric.  The best way to compare your mortgage options is to review all the loan terms together and determine which is most suitable.

I hope you found this post useful! As always, if you or anyone you know is in need of a local Florida mortgage loan originator, I’m your guy. Call me at 888-859-7418 or apply online for your Florida mortgage. We’ll keep you posted and let you know when it’s time to pull the trigger!

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One Response to Florida Mortgage 101: APR and What it Means
  1. Nancy
    March 10, 2010 | 3:53 AM

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    Nancy Smith.
    nancysmith008(at)gmail(dot)com

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