Several years ago the U.S.
Congress tried to protect consumers from a few unscrupulous lenders by requiring
all lenders to calculate and disclose the annual percentage rate (APR) you pay
on your mortgage loan. Do yourself a favor. Forget about APR and instead direct
your attention to the Good Faith Estimate of Settlement Costs (GFE).
Though Congress meant well, in practice the APR
is not helpful and is confusing. If you are looking for a good way to understand
your costs of borrowing and/or to compare one lender's costs to another, the GFE
is your best bet. Get your lender(s) to provide a written GFE before you commit
your mortgage business.
When reviewing a GFE, keep in mind that the
lender actually controls only a handful of the disclosed costs. Other parties
typically control costs of appraisal, settlement, title insurance, recording
fees and taxes, survey, and the "prepaid" expenses of homeowner's
insurance, mortgage insurance, real estate taxes, etc. Most of the remaining
costs are controlled by your lender. Review these origination fees, discount
points, etc. and you will have the ability to understand the full costs of your
proposed mortgage loan.
