# Calculating Annual Percentage Rate On Home Mortgage Transactions

Gustan Cho Associates are mortgage brokers licensed in 48 states

An FHA Loan or VA loan, which typically adds on the upfront mortgage insurance premium to the mortgage balance, will rise the effective annual percentage rate, also referred to as APR, for that amount is now a finance cost. Calculating Annual Percentage Rate can be often confusing to consumers. However, mortgage regulators require that the annual percentage rate on mortgage loan advertisements be disclosed to inform the consumer about the true cost of obtaining a mortgage loan. Regulators also believe that calculating the annual percentage rate and disclosing the annual percentage rate makes shopping for interest rates on mortgage loans to consumers much easier. ON the old TIL ( Truth In Lending)  at the top left, it was very confusing for some to both explain and understand what effective APR meant. A customer and we have all had them, would naturally be skeptical when they would see it. This had many closers and loan officers (attorneys too) using calculating payments to show nominal APR and or going over the amortization schedule to relieve any concerns.

## Calculating Annual Percentage Rate With The New Loan Estimate

The new LE or Loan Estimate has replaced the old Good Faith Estimate. There is now a 5-year interest percentage calculation, which breakdowns how much of a customer’s payment goes towards interest in the first five years. On Long term fixed rates, the percentage is typically between 60-75%. APR changes that require a re-disclosure, do take effective APR changes negatively to the borrower if the change is 1/8 of a point or more. Mortgage loan officers need to be cognizant of the potential triggers that could delay or prevent a closing from happening. Use your mortgage insurance tables, often referred to as MI tables, correctly, and over-disclose when possible. If and when you roll in costs, the annual percentage rate, APR, will be higher. So long as the mortgage loan client knows they are financing more than originally anticipated, problems will be avoided. It is common for an FHA loan to close in November, so they can skip up to two payments and run up Christmas Bills. It is all about creative mortgage loan structuring, and timing, depending on what state you live in and how taxes are paid, can help or hinder the mortgage loan process.

## What Is Annual Percentage Rate

Here is the actual definition per Wikipedia for your reference.

• The nominal APR is the simple interest rate (for a year).
• The effective APR is the fee+compound interest rate (calculated across a year).
• Calculating the Annual Percentage Rate.

There are at least three ways of computing the effective annual percentage rate: