Make Use of APR? It Depends on What Type of Florida Home Loan You Choose

Wait, there are more rates to consider as you look to apply for a Florida home loan? Yes. While the process may seem confounding, we’re here to ease any fears and explain various complications.

For example, costs vary for those seeking short-term Florida home loans. One issue to ponder is the APR - must you pay it? What is it? We examine below …

What is the APR?
It’s is a measure of the cost of credit; including loan fees paid to the lender upfront, as well as the interest rate.

What is the purpose of the APR?
To provide a single comprehensive measure of the cost of credit to borrowers, which they can use to compare different kinds of Florida home loans. The APR is a mandated disclosure under Truth in Lending. Hopeful owners face it as soon as they search for interest rate quotes because the law requires that any rate quote must also show the APR.

Which borrowers should ignore the APR and why?

- Borrowers who expect that they will sell their house or apply for Florida home loan refinancing within seven years. Why is this not for them?

Over short periods, the APR is biased in favor of Florida mortgage loans with low interest rates and high fees. It’s calculated on the assumption that loans complete the duration of their terms, thereby reducing the fees allocated each month and reducing the APR relative to what it would be if the Florida home loan were paid off before term, which most of them are.

- Individuals looking to raise cash, who are comparing the cost of a cash-out refinancing with the cost of a second mortgage. Let’s delve into the reason for this statement:

An APR fails to take account of the rate on the old mortgage that is refinanced. If the rate on the initial Florida home loan is below the rate on the new larger mortgage, failure to account for the loss of the lower rate can falsely suggest that the cash-out refinance will cost less than a second mortgage that raises the same amount of cash.

- Borrowers with little cash who need a high-rate loan with negative points to cover their costs. Why is this the case?

Because there is no clear rule regarding the treatment of negative points in the APR calculation. Different lenders do it in different ways, which means that their APRs are not comparable.

Those who need a rebate to cover some or all of their settlement costs should shop for the largest rebate at a specified rate, or shop for the lowest rate on a no-cost Florida home loan.

- Borrowers shopping for a Florida home equity line of credit. Here’s the reason to avoid an APR under these circumstances:

The APR on a HELOC is the initial interest rate, which the borrower already knows. Potential applicants should shop the margin, the amount that is added to the prime rate to determine the HELOC rate after the introductory rate period is over.

So, who SHOULD look into the APR?
It’s most useful for borrowers considering an adjustable-rate mortgage who expect to hold the mortgage a long time and who are not doing a cash-out Florida home loan refinance, a low or no-cost mortgage or a HELOC. Submit our simple application atop this page to learn more.