It is my personal opinion that comparing an APR is not a fair way to compare rates between lenders. Now, I know that the APR was originally constructed to be able to compare one rate that would consist of all of the costs for the transaction between lenders, but unfortunately, there is more to it than that.
The short video below goes over some of the basics on how to compare home loan rates and APRs.
The APR consists of variables such as prepaid interest, escrow fees, as well as recording fees and then lender fees and rates. The prepaid interest on a loan is determined by the day of the month that the loan closes. The unknown of what day of the month a loan will actually fund could allow a lender to disclose 1 day or 30 days of interest. Of course, 1 day would make the APR much less than 30 days.
Also, with a purchase loan, the lender doesn’t get to choose the escrow or title company, however, before the property is identified, the lender will use an estimate. The estimate could be a really low number, but when in fact the escrow company is identified, the number could be much higher, again, increasing the APR. My opinion is that in order to get a fair comparison, one must shop a lender on the same day (rates change constantly), and they need to ask for the rate, plus lender fees as well as the appraisal fee.
With the items listed above, and again, doing a same day comparison, THAT folks, would be my thoughts on obtaining the most accurate rate quote for a home mortgage. Keep in mind that there are a lot of factors that go into the rate portion as well, but that’s another topic! Keep an eye out for my future blog on “what factors are included in determining a borrower’s interest rate”.
Feel free to reach out with any questions!
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