Determine the real cost of your loan.
If you haven’t noticed already, very often the loan’s base rate and the annual percentage rate (APR) are completely different. Before you sign the paperwork for your new home, be sure that you know the real price tag by differentiating between these two costs.
Base rate – This determines what your monthly mortgage payment will be.
APR – Spells out the total cost over time and includes any fees and closing costs paid to third parties, such as brokerage fees, processing fees, underwriting fees, title insurance, appraisal costs, and mortgage points.
The difference between the two is that your base rate is what your contract rate will be for your monthly payments, and the APR is the figure plus any fees to third parties that are associated with the cost of acquiring financing. When shopping for loans, it is important to note the difference in fees and how it affects your overall expenditure.
The new mortgage disclosure laws mean that The Loan Estimate and the Closing Disclosure documents include a breakdown of the loan balance, period, payment, base rate, APR and all of the associated fees. For more information on the new disclosure laws, read our previous blog here.
Even if the base rate on two fixed-rate loans is the same at 3.5%, what you pay averaged over time can be vastly different because of potentially added fees. These fees can vary from lender to lender and are factored into the APR.
While the rate and payment on a fixed-rate loan won’t change for the duration of the loan, the interest rate on an adjustable-rate mortgage (ARM) could, and most likely will, change. It is wise to discuss the pros and cons of an adjustable rate loan and how it impacts your overall ownership goals, with your Trusted Mortgage Advisor prior to selecting that option.
Be sure to choose a home lender who knows the new laws inside out and will work to find you the best options to meet your needs. Serving Walnut Creek and the state of California, along with the state of Texas, contact Andraya Coulter! Finding your home is entirely possible with a quality loan, so give me a call today!