{"id":1537,"date":"2007-06-13T23:55:18","date_gmt":"2007-06-14T06:55:18","guid":{"rendered":"http:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/?p=1537"},"modified":"2007-06-14T00:03:28","modified_gmt":"2007-06-14T07:03:28","slug":"ask-the-broker-whats-up-with-my-apr-and-why-is-it-so-different-from-my-interest-rate","status":"publish","type":"post","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/1537\/ask-the-broker-whats-up-with-my-apr-and-why-is-it-so-different-from-my-interest-rate\/","title":{"rendered":"Ask the Broker: What’s up with my APR, and why is it so different from my interest rate?!?"},"content":{"rendered":"

Hot out of the broker oven<\/strike> mailbox today is this question:<\/p>\n

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I am in the process of refinancing. Can you please tell me what the APR should be for a $295,800 loan? The broker is charging 2% origination fee and 1.5 loan discount. The interest rate at 6.64. I’m not sure if it makes a difference but its a adjustable rate and balloon loan. After 2 years mortgage will go up.<\/p>\n<\/blockquote>\n

\n

The total settlement charges are $14,590.77. The truth-in-lending disclosure has an annual percentage rate of 10.634%. This doesn’t look right.<\/p>\n<\/blockquote>\n

\n

I questioned the broker and he said that rate is all the fees and payments that are in the loan. This is not my first time refinancing and I never saw it that high. Why is the difference so much?<\/p>\n<\/blockquote>\n

Disclaimer:<\/em><\/strong> I am not privy to the reasons or motivations for this transaction; nor the particulars above and beyond the above question. Below are simply some general thoughts that stand out from the above inquiry. I could be completely off-base in any one of my assumptions.<\/em>
\nI had to step away from the computer and take a lap before responding to this mailbag question. Before we get to the APR\/rate discussion there is another point I want to highlight first:<\/p>\n

(1) Paying discount points to achieve a lower rate when taking a short-term ARM is always a money-losing proposition. Because this is a short-term 2-year ARM loan you will never recoup the money you paid in points to get the lower interest rate (1.5 points or $4,437 in this instance). In order to simply break even on the money spent for the loan discount in the two years before your rate adjusts your monthly mortgage payment would need to be $185 less than it would be otherwise with out the discount points.<\/p>\n

If we make a rough assumption that each point paid in discount reduces your interest rate by .5% (a reasonable assumption on a subprime 2-year ARM, might be a bit generous) then your interest rate with out paying the 1.5 loan discount points should be around 7.39. This makes Read more<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Hot out of the broker oven mailbox today is this question: I am in the process of refinancing. Can you please tell me what the APR should be for a $295,800 loan? The broker is charging 2% origination fee and 1.5 loan discount. The interest rate at 6.64. I’m not sure if it makes a […]<\/p>\n","protected":false},"author":22,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_crdt_document":"","jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[12,26],"tags":[],"class_list":{"0":"post-1537","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"hentry","6":"category-ask-the-broker","7":"category-lending","9":"no-featured-image"},"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack-related-posts":[{"id":3368,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/3368\/is-hyper-transparency-a-cover-for-mediocrity\/","url_meta":{"origin":1537,"position":0},"title":"Is Hyper-Transparency A Cover For Mediocrity ?","author":"Brian Brady","date":"July 16, 2008","format":false,"excerpt":"Which one of these loans is better? A- Loan docs at 6.5% with 1 point cost, disclosed at 6.5% with 1 point cost 30 days earlier...OR... 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