“APR” stands for Annual Percentage Rate. It is a measure of the cost of credit, expressed as a yearly rate. It includes interest as well as certain fees charged to the borrower in association with the loan. Because all lenders, by federal law, follow the same rules to ensure the accuracy of the annual percentage rate, it provides consumers with a good basis for comparing the cost of loans, including mortgage plans. APR is a higher rate than the simple interest of the mortgage. The APR on a loan with no fees will always be lower when compared to a loan with the same rate but NO lender fees, as long as the loan type and loan duration are identical.
Factors that affect the APR, along with the amount of fees associated with the loan, include the actual note rate (the simple interest rate offered by your lender), any rate buy down (discount point) and the time period for which the loan is calculated. The latter is why a consumer should never compare a loan with a 30 year loan duration to the APR for another loan with a shorter loan duration (25, 20, or 15 year).
In addition, most APR calculators assume that an individual will keep a particular loan until it is completely paid off resulting in the up-front fixed closing costs being amortized over the full term of the loan. If the consumer pays the loan off early, the effective interest rate achieved will be significantly higher than the APR initially calculated. This is especially problematic for mortgage loans where typical loan durations are 15 or 30 years but where many borrowers move or refinance before the loan period runs out.
In theory, this factor should not affect any individual consumer’s ability to compare the APR of the same product (same duration loan) from lender to lender. APR may not, however, be particularly helpful when attempting to compare different products, like ARM loans. However, you may want to compare VA loans to other types of loans, (FHA or conventional), to see how the VA funding fee affects the APR on a VA loan in comparison to the FHA loan or conventional loan that has mortgage insurance.
Again, because there are no lender fees on VA loans you get from your FreeVAloan.com lender, the APR will always be lower than other lenders who charge fees, offering the same rate. For more information on a lower APR, No Cost VA loan, Click Here.
