Call Rob Dessommes972-407-7907
Call Stephen Kremer 972-407-7925
A simple and rewarding home loan experience.
Home » Explanation of TIL and APR

Explanation of TIL and APR

Explanation of Closing Disclosure

 

In comparing any type of loan, whether it is a fixed rate loan to a fixed rate loan, adjustable rate loan to adjustable rate loan, or fixed rate loan to adjustable rate loan, there is one way that can be used to compare apples to apples and even apples to oranges. 

APRs are designed to do just that. APRs are a way to calculate the annual cost of loans, taking into consideration loan origination fees (points) and the other costs associated with securing a loan. The additional costs include appraisal and credit report fees as well as processing and document fees. 

One confusing aspect of APRs is that the APR on 15-year loans will carry a higher relative rate due to the fact that the points are amortized over the 15-year term rather than the 30-year term. When a Regulation Z (Reg Z, the mortgage companies disclosure of cost for the loan) is prepared for a buyer/borrower the prepaid interest is also included in the APR calculation. For our illustrations we will use only the points, appraisal, credit report, and processing and document fees. *

As a means of protecting consumers from companies who did not disclose the fees associated with a particularly low start rate on an adjustable rate loan or below market rate on a fixed rate loan, APRs give consumers a way to check the true cost of a loan.

 

Let’s look at how APRs are calculated. For our illustration we will assume a 8.50% fixed interest rate. For a 30-year loan the monthly payments for a $150,000 loan are $1,153.37. 

In order to calculate the APR for this loan we subtract $2,250.00 (1.50 points), $275.00 appraisal fee, $50.00 credit report fee, $500.00 processing, document and other fees. ($150,000 – $3,0750 = $146,925). The $146,925 is then used as the present value/loan amount to determine the true cost of this loan. By solving for the new interest rate for a $146,925 loan with the same payment of $1,153.37, the APR is calculated as 8.73%. 

How does this compare to a 30 year fixed rate loan with a 8.00% interest rate and 3.50 points? The monthly payment for this loan is $1,100.65.

 

In order to calculate the APR for this loan we subtract $5,255.00 (3.50 points), $275.00 appraisal fee, $50.00 credit report fee, $500.00 processing, document and other fees. ($150,000 – $6,075 = $143,925). The $143,925 is then used as the present value/loan amount to determine the true cost of this loan. By solving for the new interest rate for a $143,925 loan with the payment of $1,100.65 the APR is calculated as 8.44%.

 

To better understand how this calculates, plug in these numbers in POINT, ensuring that the “Prepaid Finance Charge” items are checked.  Go to the Closing Disclosure statement and click calculate to get the APR.

 

 

* This is for illustration purposes only.  For an accurate list of what affects the APR, see below:

 

Affects APR             
                                                               

Administration Fee

Application Fee

Closing Fee

Courier Fee

Discount Fee

Escrow Waiver Fee

Flood Certificate

Funding Fee

Mortgage Insurance

Mortgage Insurance Premium

Origination

Per Diem Interest

Processing

Tax Service Fee

Underwriting Fee

 

 

 

Does NOT Affect APR

Appraisal Fee
Attorney Fees
Credit Report Fee
Credits to Closing Costs
Escrow Fee
Escrow Account
– (Except Mortgage Insurance)
Final Inspection Fee
Homeowner’s Insurance Premium
Recording Fee
Re-certification of Value
Survey
Title Policy
Wire Transfer Fees

Rob Dessommes NMLS # 176534-PrimeLending NMLS # 13649
Copyright © 2024 PRIMELENDING In accordance with Section 326 of the USA PATRIOT Act of 2001, PrimeLending NMLS: 13649 is required to obtain a copy of the documents used in identifying our new account customers. This notice is being provided to you for adequate notice given under this act. PRIMELENDING A PLAINSCAPITAL COMPANY®, PRIMELENDING ®, HOME LOANS MADE SIMPLE®, DISCOVER YOUR BEST ®, NEIGHBORHOODEDGE®, LOANTELLIGENCESM and LOANPLICITY® are trademarks, service marks, or registered trademarks or service marks of Hilltop Holdings Inc., licensed to PrimeLending, a Plains Capital Company, for its use. You may not use, display or reproduce them without the prior written consent of Hilltop Holdings Inc. and PrimeLending. Further, you may not remove, obscure, or otherwise modify any copyright, trademark, confidentiality or other proprietary rights notices displayed on, embedded in, or otherwise appearing in any Content offered by, viewed on, or received through this site. All other trademarks identified and contained herein are the property of their respective owners and their use herein does not imply sponsorship or endorsement of their products or services. This website is not intended to offer loan services for properties in New York. https://www.primelending.com/legal-disclosures/ https://www.primelending.com/legal-disclosures/licensing-disclosures

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

©2024. All rights reserved. | Powered by Zywave Websites