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Definition of Annual percentage rate (APR)Short for Annual Percentage Rate, APR is an interest rate that differs from the note rate. Its common use is for the comparison of loan programs offered by different lenders. It is required of the Mortgage companies by the Federal Truth in lending law, to make the APR known as they advertise a rate. Usually, you will find the APR next to rate. The APR quoted by your lender to you includes other fees also but does not tell everything. Other fees and costs like title insurance are not made part of the calculation. You will soon discover that the APR is just but an estimate of the different costs of your loan as well as the interest rate. It does not offer a precise science based on the fact that some of the numbers will change between the calculation and closing time.
However, it is a progress towards the ideal direction, and a place you can begin from when making comparison of lenders and the loans they offer. Also, another fault of the APR concept is this; if a product is variable and linked to a market index, it is assumed that the index never changes. This assumption is clearly invalid and again results to a number which is incomparable from one source of quoting to another.
Lastly, the APR does not talk about balloon payments and repayment penalties or the duration of your rate lock. APR serves as direction for loan shopping; however, it is not to be relied on solely when selecting loans that best matches your specific needs.
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