If you are looking online for interest rates you should notice for each mortgage interest rate quoted there is also an Annual Percentage Rate (A.P.R.) Lenders are required by law to advertise not only the offered interest rate, but the A.P.R. as well.
The reason for this is that it is difficult to compare one lender’s interest rate to another’s if you do not know the fees that are being charged by the lender. The A.P.R. is a calculation which is intended to include the lender fees, such as points and broker fees, to arrive at the true cost of the loan, in the form of a yearly rate. This way, lenders can’t “hide” fees and upfront costs behind low advertised rates.
While the A.P.R. does provide a better comparison of rates from lender to lender, there are still variations in the types of costs that each lender includes in this calculation. Therefore, when comparing rates between lenders, remember first to compare the A.P.R. and request a good faith estimate to be sure you are aware of all of the fees to be charged.
Remember that rates and fees go hand in hand. What appears to be a lower rate may only be lower because it carries higher fees and vice versa. We work with borrowers every day who tell us that somebody else offered them a comparable rate, only to find out that thousands of dollars in fees were also being charged. We end up either eliminating those fees, or keeping the fees (if the borrower elects that option) and significantly reducing the rate.
Also remember that APR’s will not tell you anything about other loan terms which you should be cautious of, such as prepayment penalties, balloons, etc. A pre-payment penalty option is often used to provide a lower rate.
We can help you sort out all of these differences to make sure that the rate you think you are getting is really what it appears to be.