Fees Typically Included In Calculating APR

To be totally accurate the APR can only be calculated based on your Specific Loan Amount and the Final Closing Statement. Any change to closing costs or loan amount affects the APR. The higher the loan amount the LOWER the APR.

Most lenders rates, fees, programs are very similar if the loans are based on Fannie Mae or Freddie Mac guideline.

The initial Truth-In-Lending estimate is often slightly different than the final APR. The better the estimate the more accurate the APR. The extreme examples of the lowest rate with a 180 day lock-in is an APR about 1.125% above the note rate. The 12 day lock at a zero point loan is about one eighth of a percent higher than the note rate. If you take a higher interest rate with a rebate to you, or a no closing cost type loan, the APR can actually be less than the note rate.

Annual Percentage Rate (APR) Government Definition:

A measure of the cost of credit, expressed as a yearly rate. It includes interest as well as other charges. Because all lenders follow the same rules to ensure the accuracy of the annual percentage rate, it provides consumers with a good basis for comparing the cost of loans, including mortgage plans.


Truth in Lending Regulation Z

Regulation Z prescribes uniform methods of computing the cost of credit, disclosure of credit terms, and procedures for resolving errors on certain credit accounts. The credit provisions of the regulation apply to all persons who extend consumer credit more than 25 times a year or, in the case of consumer credit secured by real estate, more than 5 times a year. Consumer credit is generally defined as credit offered or extended to individuals for personal, family, or household purposes, where the credit is repayable in more than four installments or for which a finance charge is imposed.

The major provisions of the regulation require mortgage lenders to:

• provide borrowers with meaningful, written information on essential credit terms, including the cost of credit expressed as an annual percentage rate (APR).
• respond to consumer complaints of billing errors on certain credit accounts within a specific period.
• identify credit transactions on periodic statements of open-end credit accounts.
• provide certain rights regarding credit cards.
• provide good faith estimations of disclosure information before consummation of certain residential mortgage transactions.
• provide "early" disclosure of credit terms to consumers interested in adjustable rate mortgages (ARMs) and home equity lines of credit.
• comply with special requirements when advertising credit.
  
  The following table lists the items that should be included in the calculation
  of the Annual Percentage Rate - APR on the Truth In Lending Disclosure:
  

The Five Categories To Review On A Truth In Lending Disclosure

There are five terms which are considered to be "material" disclosures required by TILA. While other disclosures are required, these are deemed to be so important that a failure to give any one of them gives rise to the your right to rescind the loan transaction if your home is pledged as security.

Regulation Z 226.23. The terms are:

Finance Charge

The "finance charge" is defined as the cost of credit over the life of the loan, expressed as a dollar amount. This includes, not only interest, but any other charge which is required as a condition of receiving credit. Examples include: "points", document preparation fees and other fees which are excessive compared to their purpose (like excessive fees for notaries, appraisals, credit reports, title examinations, etc.). Regulation Z 226.4.

Annual Percentage Rate (APR)

The APR is the cost of credit expressed as a percentage. For example, a loan with an interest rate of 17% may have an APR of 25% (all finance charges are rolled into the APR). Regulation Z 226.22.

Amount Financed

The "amount financed" is also expressed as a dollar amount. It is calculated by taking the principal amount of the loan and subtracting those amounts which are financed as part of the principal that are considered part of the finance charge. For example: you take out a $100,000 note and deed of trust on your home. The 5 points ($5,000) charged on this loan are financed and are therefore included in the $100,000 principal on the note. However, since the five points are defined as part of the finance charge, they are subtracted from the $100,000 in determining the amount financed ($100,000-$5,000 = $95,000). Regulation Z 226.18 (b).

Schedule of Payments

The "schedule of payments" tells you the day of the month, timing, number and dollar amount of payments due over the entire course of the loan. Example: 1 payment of $500 on 1-5-96 and 50 payments of $100 on the 5th of each month beginning 2-5-96. Regulation Z 226.18(g). Total of Payments: the "total of payments" is also expressed as a dollar amount. It represents the total dollar cost of the loan to you, assuming all payments are made on time. The total of payments is calculated by adding up all payments disclosed in the schedule of payments.

The following are outside links for more information:

The Federal Reserve Definitions of Regulation Z
Annual Percentage Rate Calculation Program for Windows (APRWIN)

The Windows-based version of the Annual Percentage Rate program (APRWIN v 5.0) is an efficient tool for verifying annual percentage rates and reimbursement adjustments. It includes a number of enhancements over the DOS program which it is intended to replace. In particular, the Windows-based version includes relevant finance charge and APR tolerances for verifying the accuracy of annual percentage rates and finance charges on loans secured by real estate or a dwelling. They are available for purchase for $20 or free by download.