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Mortgage FAQ's

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How is the annual percentage rate (APR) different from the interest rate for which I applied? Why is the amount financed different?

The amount financed is lower than the amount you applied for because it represents a net figure. If someone applied for a mortgage of $50,000 and their prepaid finance charges total $2,000, the amount financed would be shown as $48,000, or $50,000 minus $2,000. The APR is computed from this lower figure, based on what your proposed payments would be. In a $50,000 loan with $2,000 in prepaid finance charges, and an interest rate of 14%, the payments would be $592.44 (principal and interest) on a loan with a 30-year loan term. Since the APR is based on the net amount financed, rather than on the actual mortgage amount, and since the payment amount remains the same, the APR is higher than the interest rate. It would be 14.62%. If this applicant's loan were approved, he would still receive a $50,000 loan for 30 years with monthly payments at 14%, or $592.44 a month.