Mortgage Refinancing – Annual Percentage Rate Tells You Next to Nothing About Your Loan

When shopping for a new mortgage you will inevitably encounter the term “Annual Percentage Rate.” Mortgage lenders disclose this figure to comply with truth in lending laws in the United States; however, this figure has little to do with the actual cost of your loan. Here are several tips to help you choose the best mortgage for your financial situation when mortgage refinancing.

The Annual Percentage Rate published by your mortgage company will always be higher than the interest rate you qualified because it supposedly factors in the total cost of borrowing including your mortgage interest, points, lender fees, and closing costs. Real life estimations of your costs are more complex than the APR allows, especially if you’re mortgage refinancing with an Adjustable Rate Mortgage.

If you’re in the market for an Adjustable Rate Mortgage the APR is calculated as if your mortgage has a fixed interest rate for the duration of the loan; because the lender adjusts your mortgage rate on a regular basis this Annual Percentage Rate is completely meaningless. If you are considering mortgage refinancing with an Adjustable Rate Mortgage you simply cannot rely on the APR when comparing loan offers.

If you’re considering mortgage refinancing with a fixed rate mortgage, the Annual Percentage Rate is only valid if you follow the exact payment schedule over the life of your mortgage. If you fall behind or pay your mortgage ahead of schedule, the actual APR for your loan changes. If you sell or refinance the loan this figure no longer applies.

To properly compare mortgage offers and choose the most competitive loan, you need to look at all aspects including closing costs, lender fees, yield spread premium, and closing costs. You can learn more about comparison shopping for the best mortgage while avoiding costly mistakes by registering for a fee mortgage tutorial.