It’s January 2010. Do you know where your APR is..?

Have you ever read the small print on mortgage loan advertisements? There’s a little figure that is usually included in a smaller font-size as if the person or company writing the ad wanted you to miss it. It’s called an APR or “Annual Percentage Rate” and is required by law to be in all mortgage ads.

One of the reasons that mortgage brokers and bankers don’t want you to notice the APR in their print materials is because they don’t want to confuse you, the borrower. I admit I’ve been in that camp myself. After all, your monthly payments aren’t figured on the APR and all it does is raise more questions than it answers.

Until now, 2010, that is…

Which brings me to the other reason that some mortgage companies and professionals have been all too happy to dismiss the APR as something that,  though required on advertising, is not something you should pay attention to. This reason? It allows you as the borrower to do some shopping.

See, the annual percentage rate shows you what the interest rate looks like when you take into account the charges you will incur to secure the loan. Sure, your monthly payments are figured on the actual interest rate, but the APR will show you where the rate stands in relation to the up-front costs. In many ways, it can act like a ratio. This is an over-simplification, since loan size can also affect this somewhat, but the greater the distance between the actual interest rate and the APR, the higher the up-front fees to secure the loan.

Aha! (See why loan officers have been fearful?)

But now, there is a new procedure sweeping the nation known as GFE2010. All good faith estimates given to you by your mortgage loan professional as of January 1 now must show all fees in a different manner than before, making the APR just that much more interesting.

Let me explain…

Mortgage brokers and bankers both have a fee they charge up front, usually called origination, in addition to processing, underwriting, and legal fees that go to the lender and the attorneys. But, they also get paid by the lender on the back end of the loan in the form of a rebate for securing the loan. Mortgage bankers have not been required to disclose this, mortgage brokers have. Here’s where the GFE2010 gets interesting!

From here on out, when you get a GFE from a mortgage broker, all of their compensation is going to be listed up front. As of 1/1/2010, they can no longer be paid the rebate by the lender. Instead it will now be credited to the borrower! This is not true for loan officers working for a bank, which doesn’t seem quire fair for the broker, now does it?

Ah, but it is, because it creates a very interesting dynamic now more than ever with the APR. And this all benefits you, the borrower. How? Well, the rebate credit coming from the lender to the you in a brokered loan reduces the APR. You can now compare apples to apples when it comes to loan charges. In fact, in some cases, your APR on a brokered loan may now be lower than your interest rate!

So, when shopping for your next mortgage loan, pay attention to the APR and do a little shopping around. Chances are, you can end up with not only a lower actual rate with a broker,  but a lower APR to boot! And you’ll know exactly how much your broker will be compensated.

So, it’s January 2010… Do you know where your APR is?

Advertisement