APR and Closing Costs Mortgage Calculators Make Mortgage Shopping Easier

February 04th, 2010

Shopping for a mortgage is more complicated than doing a little research online and comparing interest rates among lenders. However, using free online mortgage calculators helps shoppers compare the true costs of mortgage loans.

A variety of other costs come into play when you apply for a mortgage, such as discount points, escrow fees, title insurance, property inspection fees, and host of other closing costs that can add up to a few thousand dollars.

It’s vital that you consider all the costs as you compare mortgage quotes to determine the best deal.

The key term to consider for comparing loans is the annual percentage rate, or APR. The APR is different from the interest rate because it takes into account closing costs and points as well as the interest charged to measure the total cost of the loan.

Using free mortgage calculators can help you arrive at the APR and make apples-to-apples comparisons among quotes from lenders. To calculate the APR, first use a free closing costs mortgage calculator to determine how much your closing costs will total. You may pay a dozen or more fees as part of the closing costs. In some cases you may split some of the fees with sellers, but of course if you’re refinancing you pay all the fees.

New federal consumer protection rules require lenders to provide a good faith estimate (GFE) of what the loan will cost within three business days of receiving your mortgage application. Use fee estimates to plug in values to the costing costs mortgage calculator to get a closing costs total.

Once you have an estimate for closing costs, use the APR mortgage calculator to determine the annual percentage rate of the loan. To use the APR calculator, enter the loan amount, interest rate, repayment period, closing costs and points. A point is equal roughly to 1 of the l%oan amount. Lenders charge points to drive down the interest rate they offer.

For instance, a $100,000, 30-year fixed-rate loan with a 5% interest rate, one point and $2,000 in closing costs would have an APR of 5.26%. The same loan with identical closing costs but no points would have a 5.17% APR.

Bear in mind that the calculator spreads out the costs of the loan, so if you plan to stay in a house for a short period of time and you’re comparing two loans with similar APRs, you’re better off with the one with lower up-front costs.

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