Definition of Annual Percentage Rate:

Annual Percentage Rate (APR) in Orange County:

A number designed to represent the total cost of a loan as a percentage of the principal amount, allowing borrowers to more consistently compare loan costs. The APR is not the interest rate of the loan – IT WILL ALWAYS BE HIGHER. Here's a working example of how APR works: a $400,000 loan for 30 years with a 4.5% interest rate that involves 1% in origination fees to the mortgage broker or lender, 1.0% of discount points for an interest rate “buy-down” which is common in Orange County, and another $2,500 in other fees (junk fees) has an annual percentage rate of 4.728%. A second 30-year, $400,000 loan at a 4.50% interest rate with no origination fees or discount points but the same $2,500 in other fees would have an annual percentage rate of 4.554%. But before you jump to conclusion thinking that the second option is the best, you have to factor in how long the borrower plans on keeping the loan or staying in the house!

In the example above, the first loan with more up-front costs is worth the lower interest payment only if a borrower holds the loan more than 10 years; if he moves or refinances in less than 10 years, the second loan with the higher APR would turn out to be a better deal. It may also be that a loan with a lower APR is worse in other ways; for example, some loans have a pre-payment penalty, which a lender charges if you pay off the loan early. But the APR is a good place to start when trying to evaluate the total costs of a loan. A lender estimates all the costs associated with a loan, as well as the APR, in a Good Faith Estimate (GFE). The APR is disclosed to the borrower through the Truth In Lending Statement (TIL) and is required to be sent to the borrower, along with the GFE within 3-days of applying to the lender for the loan.

Functional Definition of Orange County APR:

This is not the note rate on your loan. It is a value created according to a government formula intended to reflect the true annual cost of borrowing, expressed as a percentage. It works sort of like this, but not exactly, so use this only as a guideline: deduct the closing costs from your loan amount, then using your actual loan payment, calculate what the interest rate would be on this amount instead of your actual loan amount. You will come up with a number close to the APR. Because you are using the same payment on a smaller amount, the APR is always higher than the actual note rate on your loan.

 

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