Mortgage Dictionary

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The APR (also known as the annual percentage rate) describes the total cost of a mortgage, including closing costs and lender points, over the full term of a loan. Lenders are required by law to show a loan's APR.

Home buyers often use the APR to compare mortgages from different lenders. There are two potential problems with this practice.

  • Different lenders may include different fees in their calculation, skewing the comparison. As a result, it is important for the home buyer to make sure that the APRs being compared include similar fees.

  • The APR is computed over the full term of the loan; however, home buyers seldom keep their homes for the full term. The loan with the most favorable APR over the full term is not always the least expensive loan over a shorter time period. A better strategy is to compare loans, based on the total cost over the period that the home buyer owns the home. To see how how to find the total cost of a mortgage over any time period, read the total mortgage cost case study.
See also:   Mortgage Mistakes