Is comparing APRs the best way to decide which lender has the lowest rates and fees?
The Federal Truth in Lending Act requires that all financial institutions disclose the Annual Percentage Rate (APR) when they advertise a rate. The APR is designed to present the actual cost of obtaining financing, by requiring that some of the closing fees charged at closing be included, in addition to the interest rate, to determine the cost of financing over the full term of the loan.
For adjustable rate mortgages, the APR can be complex. Since no one knows exactly what market conditions will be in the future, assumptions must be made regarding future rate adjustments.
You can use the APR as a guideline to shop for loans but you should not depend solely on the APR in choosing the loan program that's best for you. Also, the APR doesn't include all the closing costs. Look at total fees, possible rate adjustments in the future if you are comparing adjustable rate mortgages, and consider the length of time that you plan on having the mortgage.
Don't forget that the APR is not the actual interest rate. Your monthly payments will be based on the actual interest rate, the amount you borrow, and the term of your loan.
If you would like additional information you may want to see the Buying Your Home Settlement Costs & Helpful Information booklet Third Federal will make available to you.