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Buyer's Guide: Understanding Rates, Points, and APR
Interest
rates, points, annual percentage rate (APR) it can all seem confusing. But it's
really all about making the down payment and monthly payment fit you and your
lifestyle. So let's look at how you can custom fit a rate to your needs. Then
talk about a way you can protect a rate you like while you shop for a home.
Know how interest rates affect your paymentThe interest
rate on a loan is used to calculate your monthly payment. The higher the
interest rate, the higher your monthly payment. The lower the interest rate, the
lower your monthly payment. Simple? Yes, but abstract until you see it applied
to your loan. Lower your rate and payment with points.
Points are fees paid to the lender at closing. Each "point"
is equal to 1% of the loan amount. For a $100,000 loan, a point equals $1,000.
Two points would equal $2,000.
With many loans, you can lower the rate
by paying more points. If you have the cash, it's a good way to save money on
interest over the life of your loan. See how points affect rates. If you're low
on upfront cash, then go for fewer points.Use the APR to compare
loansHome loans are more than interest rates and points. They also
involve other costs. The APR expresses the annual cost of a loan as a
percentage, factoring in not only its rate, but the points and other charges
over the life of the loan.
The Truth-in-Lending law requires all advertisements for home loan
credit terms include the APR. The APR is intended to enable you to compare terms
of loan products from different lenders.
To make an accurate
comparison, compare loans with the same terms, interest rates and points. Then
look at the APR. The loan with the lower APR is the less expensive loan.
Lenders also provide the APR along with a loan's interest rate in the
Truth in Lending Disclosure Statement. This document will be mailed within 3
days after you submit an application.
 Back to TopSave cash with a "no
origination fee" loanSome lenders charge an origination fee to
cover the administrative costs of processing a loan. If you haven't much
available cash beyond the down payment, you might want to look into a no
origination fee loan.
On FHA loans, it's customary to charge an
origination fee, but it can be added to your total loan amount and included as
part of your financing.
Now that I found my home, should I lock in the rate or let it
float?Ready to sign a contract? If you're afraid rates are headed up,
protect your buying power by locking in the rate at the time you apply for your
loan.
What should you look for in a rate lock? Make sure it allows
enough time for your loan to be processed. And get it in writing. This is
important because some lenders offer rate protection for just a week or 10 days
not long enough for many loans or home sales to be completed. If you exceed the
lock-in period and your rate expires, you may see your loan rate go up.
Homeland Capital Mortgage offers many different lock in periods, depending on
the
loan program youve selected. Longer rate locks are available if you're building
your
home or
need more time to close.
Think rates might drop while your loan is being processed? At the time
of your application, take a risk and let it "float" instead of
locking. You can watch rates and lock in at any time until the day before your
loan closes. The moment you tell your lender to lock the rate, that's the rate
you'll get. But be careful. Rates are as difficult to predict as the stock
market. And if rates suddenly shoot up, you could find yourself with a higher
monthly payment than you planned or, even worse, unable to afford the home of
your dreams.
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MORTGAGE 101
Rates, Points, APR
