• Archive for March, 2010

    What is APR?

    March 1, 2010 // Comments Off

    The Truth in Lending Form or the “TIL” was created as a result of the Truth in Lending ACT (TILA) of  1968. The primary goal of the TILA of 1968 was to protect consumers in credit transactions such as home loans and auto loans. The most commonly asked questions related to the Truth in Lending form surround the Annual Percentage Rate or APR.

    The APR is NOT the same as your interest rate or “note rate.” APR consists of a combination of both the amount of interest you will pay based on your note rate and the APR fees associated with your loan. The purpose of the APR is to gauge whether or not your loan is “fee heavy.” For example if your note rate is 5.25% and your APR is at 7.5% you know there is a problem based on the drastic difference. It is important to note however that APR will almost always be higher than your note.

    For example, in a scenario where the interest rate for a home loan (“note rate”) is 5.5%, the first piece of the equation would be calculated by obtaining the interest paid on the loan at 5.5%. The second part of the equation would include any fees that are considered “APR fees” (meaning they get included into the APR calculation).

    Lastly, these two totals are added together and then recalculated and expressed as your APR.

    The key definitions to remember are as follows:

    • Interest Rate or “Note Rate”: The amount of interest you pay on your home loan. This is the percentage that has been quoted to you as your “rate.”
    • Annual Percentage Rate – APR: A disclosure tool or number that is used to help consumers understand the total fees their loan has by comparing the difference between the APR and the Interest Rate.

    If you have questions, do NOT hesitate to ask your Mortgage Consultant for clarification.

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