Banker explains how APR affects a home loan to borrowers

Mortgage banker: Harry Sessa

Purchase price: $482,000, 20 percent down

Property type: Second home in New Haven County

Loan amount: $385,600

Loan type: Conforming 30-year fixed with APR 3.970 percent

Backstory: Sessa recently had borrowers who purchased a second home on the Connecticut Shoreline. The Realtor, who referred the clients, explained to Sessa that they were actively shopping with several area lenders and were concerned about the annual percentage rate.

When Sessa made contact, the clients admitted they were really unsure what the APR meant, but they were told this was the best way to compare rates.

Lenders typically quote two rates for their products — interest rate and APR. The interest rate is the note rate on the loan. The APR combines the note rate and other costs and fees, like points, mortgage insurance and origination fee, all associated with taking out a loan to arrive at APR. So the lowest APR will be the lowest cost to the borrower over the life of the loan.

In this situation, the borrowers choose to pay points at closing to reduce the interest rate for the life of the loan. Paying points for a lower rate can save money over time by reducing the overall amount of interest you pay. The primary advantage of APR is it allows the borrower to better compare the cost of borrowing from different lenders or the cost of different types of loan programs.

Comparisons between APR’s may seem complicated, but it is a helpful tool to help compare lending offers. Since the APR indicates how much you’ll pay for anything you choose to finance, it is important to understand how it works.

Don’t be afraid to ask your mortgage loan officer questions and be sure to compare your APR to other programs and other lenders. This will help to ensure you are getting a good deal.

Of course there are many considerations beside APR when choosing a mortgage, but this will be part of another column. After reviewing several equally important factors, Sessa’s borrowers ended up closing their loan with him and United Bank.