Annual Percentage Rate (APR) Magical Number or Myth When Shopping For Mortgage Refinancing Or Second Mortgage Loans
Analyzing APR during mortgage refinancing or second mortgage loan shopping can be a very tricky
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proposition. "Many people have come to believe that a loans APR, or "Annual Percentage Rate", is the single most important factor in comparing mortgage loans. However, this is rarely the case, especially in today's marketplace," explains Bob Peckenpaugh, Manager of CFIC Home Mortgage.
1) Not all closing costs are calculated within the APR uniformly. According to Peckenpaugh, "There is a huge variance among lenders, mortgage loan ( life insurance ) officers, and even states on which fees they include in their APR when calculating the loan. There is no standard among the mortgage industry, let alone among competing mortgage companies."
2) The costs themselves can be manipulated within the loan. For example, prepaid interest (the amount of pro-rated interest a consumer pays at closing for interest which will be earned from that date until the end of the month) can be represented as anywhere from 1 to 30 days, a potentially huge difference, especially on larger mortgage ( life assurance ) refinancing loans.