Annual Percentage Rate Fees

The actual understanding of
which fees to include in the APR calculation, varies among banks, brokers
and mortgage companies.  That is why the APR in the real world is not
really a useful comparison tool. The following list was provided to us by
a national wholesale mortgage lender as a guide for what they include in
their calculations.  Use this chart only as an example, not a guarantee. 
Even this list is open to debate. 


The following information

may be out of


This list should not apply
to your situation. 


Discuss your APR questions
with your lender


Fees Typically Included In Calculating APR


Origination Fee


Discount Fee


Fee (Debated, if paid outside closing, but we include)


Report Fee (Some say not included, but we include)


Inspection Fee


Origination Fee


Loan Discount Fee


Service Fee


Determination Fee (Lenders require, but not included?)


Life Of
Loan Coverage Flood Fee


Funding Fee


Underwriting Fee


Underwriting Fee






Courier Fee


Recertification Fee (Lenders require, but not included?)


Insurance Premium and Impound Cushion


Administrative Fee


Application Fee




Escrow/Closing Agent/Closing Attorney Fee


Binder Fee


Preparation Fee By Escrow   (Some say include)


Redraw Fee


Notary Fee


Attorney Fee


Policy Premium Fee




Sub Escrow
By Title Company To Pay Off Existing Liens On Loan


Endorsement Fees


Fax Fee By
Title Company


Fee By Title Company


Fees (Some say include)


Transfer Fee (
regardless of who
charges it)




Non-Closing Attorney Fee

(retained by borrower)


About Annual Percentage Rate Disclosures

To be totally
accurate the Annual Percentage Rate 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.  Even if the lender fees are right on,
the APR can be impacted depending on the choice of title companies and escrow
companies.  Since all fees charged by independent companies vary and
are not known until the closing, the APR will vary from both the initial APR
disclosure and final APR sent out with loan documents.  The higher the
loan amount the LOWER the APR.  Its really time for lawmakers to consider
again if the APR is helping consumers make better choices.  It may be
ok for credit cards or even home equity lines of credit, but not mortgages. 
Too many unknown variables impact final Annual Percentage Rate.


We do
not recommend making a final decision on any lender based on the APR quoted
to you by phone.  It is a well-intentioned law but it is flawed and APR's
on Truth In Lending Forms are often wrong.  Most web sites offer one
APR based on a sample loan amount.  Unless your loan amount is exactly
the same, your  APR will be different than the number quoted.  This
is why Harp Financial currently discounts the practical importance of APR.  We are happy
to provide a Good Faith Estimate and a Truth In Lending Disclosure including
the APR for your requested loan amount and interest rate with no obligation
to apply with us.


would never pick a lender based on Annual Percentage Rate. 


Even after 24 plus years in the mortgage
business we aren’t positive that our APR calculations are always correct!


If honest lenders debate which items to
include in the APR calculation because of their interpretation, how can any borrower know if the information is


is very easy to manipulate.

Some loan originators
intentionally lower the APR to satisfy smart, but unsuspecting shoppers. 
If you are shopping for the best deal; ask for a list of all fees, rates,
and points and ask for a written guarantee if it sounds unbelievable. 
If a quote is a lot lower than the other quotes you get by more than .250%
to .375% in rate — It is probably not true.  Most lenders rates, fees,
programs are very similar if the loans are based on Fannie Mae or Freddie
Mac guidelines. 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 are applying for the really low rate with 2.50 points
or more,  the APR can be as much as 1.125% above the note rate. 
On the other end, a rate at zero points
is about one eighth of a percent higher than the note rate.  If you take
a higher interest rate with a rebate to you to get a no closing cost type loan,
the APR is usually lower than the note rate.


Interesting related testimony from, September
16, 1998 regarding:

Rewrite of Truth in Lending Act and Real Estate
Settlement Procedures Act.


Want to figure it out?



The current law requires the lender or broker
to provide an estimate of third party fees, but with the wide price range
for services quoted upfront and then seeing what is actually charged, the
Annual Percentage Rate can never really be an accurate number.  When
enacted the APR was a great idea to protect the consumer, but the current
APR disclosure provided by the typical mortgage lender is no longer
protecting or informing anyone. 


The following information is how it is supposed
to work.  At least in theory:


The following
is HUD's recommendation regarding shopping for a loan:

Loan Costs. Comparing APRs may be an effective way to shop for a loan. 
However, you must compare similar loan products for the same loan amount. 
For example, compare two 30-year fixed rate loans for $100,000.  Loan
A with an APR of 8.35% is less costly than Loan B with an APR of 8.65% over
the loan term.  However, before you decide on a loan, you should consider
the up-front cash you will be required to pay for each of the two loans as

Another effective shopping technique is to compare identical loans with different
up-front points and other fees.  For example, if you are offered two
30-year fixed rate loans for $100,000 and at 8%, the monthly payments are
the same, but the up-front costs are different:

Loan A – 2 points ($2,000) and lender required costs of $1800 = $3800 in costs.

Loan B – 2 1/4 points ($2250) and lender required costs of $1200 = $3450 in

A comparison of the up-front costs shows Loan B requires $350 less in up-front
cash than Loan A. However, your individual situation (how long you plan to
stay in your house) and your tax situation (points can usually be deducted
for the tax year that you purchase a house) may affect your choice of loans.


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

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 Five
Categories 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:



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 also 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.


Percentage Rate (APR)

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.



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).


of Payments

The "schedule
of payments" tell 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.

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