As Tom previously mentioned it is usually better to stick with comparing rate and fees with other offers than the APR method.
It depends on the loan program. The government insured loans, FHA, VA and USDA will have higher APRs because of the upfront "funding fees" involved but they will also typically have lower interest rates than a conventional mortgage. For example: FHA loans requires an upfront mortgage insurance premium of 1.75% of your loan amount which is rolled into your loan. That upfront "cost" is added to your APR calculations which causes the APR to increase.
The interest rate determines your monthly payment while the APR calculates how much it cost you to get that loan/rate.
You want to look at the rate first, then the monthly payment and finally the APR.
Lenders that forget to check off boxes correctly(in calculating APR) are mostly out of business or soon will be after their next audit.
APR is still a valid tool. I just don't like it because it is a leap of faith and doesn't encourage the borrower to 'what if' their loan offer.
Will you pay off early?
How long will you stay in the loan?
Then APR doesn't apply if you don't fit inside the box of someone who will happily pay their loan off in equal 360 payments.
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Because of this I would not look at APR but look at the total fees charged for a given interest rate. APR looks like an interest rate but it is not an interest rate. If your loan had zero closing costs your APR would equal your interest rate.
When comparing GFE's from different lenders request a REAL GFE and a Breakdown of fees. Look at your adjusted origination charge. This fee accounts for any credit you may also be receiving for the interest rate you have chosen.
Please feel free to call or email me any questions.
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APR is a way to compare two loans with different rates and fees.
Interest rate is what the debt is amortized with.
I prefer to compare rate + fees with competing offers.
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