You’ll see an interest rate and an Annual Percentage Rate (A.P.R.) for each mortgage loan you see advertised. The easy answer to “why” is that federal law requires the lender to tell you both.
The A.P.R. is a tool for comparing different loans, which will include different interest rates but also different points and other terms. The A.P.R. is designed to represent the “true cost of a loan” to the borrower, expressed in the form of a yearly rate. This way, lenders can’t “hide” fees and upfront costs behind low advertised rates.
While it’s designed to make it easier to compare loans, it’s sometimes confusing because the A.P.R. includes some, but not all, of the various fees and insurance premiums that accompany a mortgage. And since the federal law that requires lenders to disclose the A.P.R. does not clearly define what goes into the calculation, A.P.R.s can vary from lender to lender and loan to loan.
The A.P.R. on a loan tied to a market index, like a 5/1 ARM, assumes the market index will never change. But ARMs were invented because the market index changes and makes fixed rate loans cheaper or more expensive to make — that’s why they’re variable rate in the first placed!
So, A.P.R.s are at best inexact. The lesson is, that A.P.R. can be a guide, but you need a mortgage professional to help you find the truly best loan for you.
Note when you’re browsing for loan terms that the A.P.R. will not tell you about balloon payments or prepayment penalties, or how long your rate is locked. Also, you’ll see that A.P.R.s on 15-year loans will carry a higher relative rate due to the fact that points are amortized over a shorter period of time.
St. Louis Mortgage Interest Rates – October 13, 2010
- 30-year fixed-rate 4.125% no points
- 15-year fixed-rate 3.625% no points
- 5/1 adjustable rate 3.00% no points
- FHA/VA 30-year fixed rate 4.250% no points
- Jumbo 5/1 ARM 3.500% no points
- Jumbo 15 year fixed-rate 4.125%
For more information or if you have questions on mortgage rates in St. Louis you may contact me by phone at my direct line, (314) 372-4319, email at rfishel@paramountmortgage.com or you can visit our company website at http://www.paramountmortgage.com.
*Note- The above rates are based upon a typical sale price of $187,500 with a 20% percent down payment leaving a loan amount of $150,000 to a borrower with a 720 credit score for a loan with no discount points charged. Rates and terms will vary depending upon loan amount, home value, credit and income of borrower.
This information is provided by this author and this site for informative purposes only and is not warranted or guarteed in any way.
Leave a Reply
You must be logged in to post a comment.