From: "AJ M." 
Newsgroups: alt.org.natl-assn-mortgage-brokers
Subject: Re: Interest Rate vs. APR
Date: Tue, 2 Dec 2003 23:44:06 -0500

Hey guys.  Sorry it took so long to respond.  I ended up closing last week.
After wrangling with my lender for about an hour, I still could not get an
explanation as to why the APR (6.282) was so much higher than my IR (6.0).
My real estate lawyer was convinced that the situation was not cause for
alarm, however, I still have my doubts.  The funny thing is, on the day of
settlement, the updated Truth-In-Lending statement quoted an even higher APR
of 6.286!  However, due to my lender's inability to give me straight
answers, I had no recourse whatsoever.  I do believe his business
practice(s) are suspect, and I will not be recommending him to my friends
and family.  Jeff and Scott, your insight was valuable, I wish I could
return the favor somehow.

Thanks again!

AJ M


"Jeff Strickland"  wrote in message
news:vrl72o9tduosc6@corp.supernews.com...
> If I plug in the loan amount, interest rate, and term into my calculator
and
> ask it to give me the payments, then keep the payments and term the same
> while changing the interest rate to the APR (6.282), I get a new loan
amount
> that shows close to 5700 in fees. We know what 1900 of those fees are,
> therefore there are about 2 points (about $3800 in fees based upon a $191k
> loan amount).
>
> If I plug in the PMI costs, the APR is not even close to what the original
> poster said he was getting.
>
> I went to my manager and asked if the PMI was considered in the APR, she
> said no. I think the borrower in this scenario is paying Loan Origination
> Fees even though the loan officer said he was not. I have to wonder if the
> loan officer is complying with the disclosure laws, either the letter of
the
> laws or the spirit of them.
>
>
>
>
> "Browser"  wrote in message
> news:9Qrub.27146$HD3.24496@lakeread06...
> > I have made templates for the loan origination software that I use
(Calyx
> > Point), so that everything is standardized for each scenario (purchase
vs.
> > refinance).  I have also checked the PFC box for all items necessary to
> > determine the APR.  When I responded previously, I had generated a
> scenario
> > to match AJ's, and could not get the APR anywhere near his quote.  I
> noticed
> > that the MI is not included on the Good-Faith-Estimate as a PFC, but
when
> I
> > added MI to the scenario, and recalculated the APR from my
> Truth-In-Lending,
> > it did indeed increase significantly.  I assume that it is considered a
> > finance charge, as it is required by the loan, much like interest is.
> Just
> > a thought as to how it affects the APR.
> >
> > Scott Buie
> > Vice President
> > Carteret Mortgage Corporation
> >
> >
> > "Jeff Strickland"  wrote in message
> > news:vr7g1ajt57at3b@corp.supernews.com...
> > > Frankly, I am not sure that PMI is even a factor in the APR. Browser
> > > suggested that it is, but I think it is not.
> > >
> > > Bascially, the disclosure laws require that the lender (or broker, as
in
> > my
> > > case -- I work for a loan broker) disclose all costs to you. We are
> > > technically supposed to even report the rebate that the investor pays
> us,
> > > but if the loan rate is not locked, then we don't know what the rebate
> > > really is, and we are supposed to disclose within three days of
running
> > > credit. My point is, we must disclose all known costs, but there are
> some
> > > items that we might not know by the disclosure deadline, this would
> > include
> > > the rebate that we are getting.
> > >
> > > None of the rebate is charged back to you, therefore it is not part of
> the
> > > APR, and is not really a critical factor. It is critical ONLY because
if
> I
> > > do a 6% loan and take the rebate as my commission, and another loan
> > officer
> > > does the same loan at 6% plus a point, then you loan at that other
place
> > > will cost you more, and this will be shown in the APR. I could even do
> the
> > > loan at 6% plus a half-point, and the other loan would cost you more.
> > >
> > > The value of the APR is that you can compare multiple offers of a 6%
> loan,
> > > and the one with the lowest APR would be the cheapest for you to get.
> > > remember when you told me the loan fees you were paying, and I made a
> > feeble
> > > attempt at comparing them to my fees? You said that you were paying 88
> for
> > > something, and my fee for the same was 495, and you had 700 for
> something
> > > and mine was 500. You try to compare all of these fees, but the names
> are
> > > different, and the amounts are different, and you try to simply
> > bottom-line
> > > the whole mess because you are getting a headache ...
> > >
> > > The APR is that bottom line. That is its only value in anything. If
you
> > got
> > > three loans all at 6%, and had disclosures from each of the
> > lenders/brokers,
> > > and you were trying to figure out which loan was best, the APR is the
> > quick
> > > summary that takes you immediately to the bottom line.
> > >
> > > Your APR has $5662 (5700) in fees included. You already know where
1880
> > > (1900), so you have a reasonable question as to what the other (3800)
in
> > > fees are. (rounded figures) Since the loan is 190k, then 3800 equals
two
> > > points. It is reasonable that you pay points to get a loan, so I don't
> > have
> > > any objection that they are being charged, but when you opened your
> first
> > > post with the understanding that you had no points, I felt a need to
> point
> > > out that you apparently are paying a Loan Origination Fee. I suspect
the
> > > actual points you are paying is closer to 1.75 because there are some
> > > unknown fees that have not been disclosed yet. The actual closing
costs
> > will
> > > be closer to 2500 than 1900, so the portion of the APR that is a loan
> > > origination fee will be less. Of course, the APR could have simply
been
> > > miscalculated.
> > >
> > > If you have any complaint here, it is that they tried to conceal the
> Loan
> > > Origination Fee from you. It will be disclosed eventually that you are
> > > indeed paying points, but you may as well know this going in ...
> > >
> > >
> > > ABOUT THAT PMI
> > > This may not be the best thing for you to be doing. PMI is charged
when
> > the
> > > loan amount exceeds 80% of the value (LTV is over 80%, where LTV means
> > loan
> > > to value). You are putting 10% down, so the LTV is 90%.
> > >
> > > If your Credit Score is high enough (over 660), there are several
other
> > > programs that you can look at that will not have PMI. There are loan
> > > programs where we write a 1st at 80%, and a second at either 10%, 15%,
> or
> > > 20%. We refer to these programs as 80/10, 80/15, or 80/20. With the
> 80/15,
> > > then you only put 5% down, with the 80/20 you don't put anything down.
> > Using
> > > the down you intend, then you would be looking at the 80/10.
> > >
> > > PMI is not a valid tax deduction, but the interest paid on the 10% 2nd
> is
> > a
> > > tax deduction. There are two benefits to the 80/10 as opposed to the
90%
> > > loan that you are looking at, 1.) the interest on the 2nd is tax
> > deductable,
> > > and 2.) the payment on the 1st plus the payment on the 2nd is probably
> > about
> > > $35 per month lower than the payment on the 1st plus the PMI. Now only
> do
> > > you get a lower payment each month, but you get an additional write
off
> at
> > > the end of the year. When you do the combo loan, or sometimes called a
> > > piggyback loan, all of the same qualifications occur, but there are
> added
> > > escrow costs. the escrow costs are easily recovered by the additional
> tax
> > > write off, so this ought not be an issue.
> > >
> > > You said that you would be making extra payments. This is a good idea
no
> > > matter what loan program you are on. If you get an 80/10, or any combo
> > loan,
> > > then you should throw the extra payments at the 2nd until you can get
it
> > > paid down. After a few years, typically about 7 years, you will
realize
> > > appreciation in value that will allow you to refinance and retire the
> 2nd,
> > > then you can concentrate on overpaying the resutling loan until it is
> > gone.
> > >
> > > NO MATTER WHICH loan program you get, DO NOT get a bi-weekly mortgage.
> You
> > > can accomplish the same thing by simply dividing your payment by 12,
and
> > > adding that figure to each and every payment you make. Depending upon
> the
> > > loan amount and rate, adding an extra month's payment every year will
> > reduce
> > > the term of the loan from 30 years to about 23 years (smaller loans
and
> > > lower interest rates will have less of an effect, but the idea remains
> the
> > > same, in your scenario, the term becomes 24.54 yrs.).
> > >
> > > Some borrowers should not get a 15 yr loan either, let me explain. The
> > > advantage of a 15 yr loan over a 30 is that the 15 will come with a
> lower
> > > interest rate, but at a higher payment (because there are fewer of
> them).
> > > Your payments (P&I) will be 1149. If you paid 1617, you could retire
> this
> > > loan in 15 years. If you took out a 15 today, the lower rate would
give
> a
> > > payment of only 1553, but (and this is a very big but) you would be
> stuck
> > > with this payment each and every month for 15 years. If you made the
> > larger
> > > payment, admittedly you would pay more interest but if there was a
month
> > > that presented you with budget problems and you needed a few hundred
> extra
> > > dollars, you could simply make the normal payment that month and get
on
> > with
> > > your life. If you can afford to make the larger payments without
> > stretching
> > > your budget, and you can do this every month without fail, then the 15
> yr
> > > note is the better deal. But you have to be able to qualify at the
> higher
> > > payment. With the 30, you qualify at a lower payment and you get
> > flexibility
> > > in your budget. You can pay a 30 in 20 by simply making payments at
> 1373.
> > >
> > >
> > >
> > >
> > >
> > > "AJ M."  wrote in message
> > > news:-audnfvJj4hefi-iRVn-gw@comcast.com...
> > > > I do have PMI at an estimated monthly rate of 62 dollars.  Unless I
> make
> > > > overpayments on principal, which I likely will, I will be make 102
> > > payments
> > > > before I am 20% vested in this house.  Is PMI why my APR (6.282 %)
is
> so
> > > > high?  I hope so.  I am drafting an email to my lender as I type
this,
> > > > asking for an explanation, since he hasn't been forthright as of
yet.
> > > > Thanks again.
> > > >
> > > > AJ
> > > >
> > > > "Jeff Strickla
d"  wrote in message
> > > > news:vr50smpcs89h3d@corp.supernews.com...
> > > > > Good point about the MI, I completely overlooked that possibility.
> > And,
> > > > with
> > > > > a 90% LTV, that is a very real possibility.
> > > > >
> > > > >
> > > > >
> > > > > "Browser"  wrotein message
> > > > > news:lTusb.189$HD3.90@lakeread06...
> > > > > > PFC stands for "Pre-paid Finance Charge".  Each item, and only
> those
> > > > > items,
> > > > > > checked as PFC are used to generate the APR.  In order to
develop
> an
> > > APR
> > > > > of
> > > > > > 6.282% with the fees you have listed, there must be Mortgage
> > Insurance
> > > > on
> > > > > > top of the Principal & Interest payment of  $1139.44.
Otherwise,
> > > there
> > > > is
> > > > > a
> > > > > > fee somewhere you are missing.
> > > > > >
> > > > > > Scott Buie
> > > > > > Vice President
> > > > > > Carteret Mortgage Corporation
> > > > > >
> > > > > > "AJ M."  wrote in message
> > > > > > news:tMGdnSR-utHkuy2i4p2dnA@comcast.com...
> > > > > > > Jeff, once again, you amaze me with your thoroughness.  The
sale
> > > price
> > > > > of
> > > > > > > the house is $213K, and we are putting down 10%, and financing
> > > > $191,700.
> > > > > > > Here are the fee's on the Truth-in-Lending statement:
> > > > > > >
> > > > > > > Appraisal Fee: $200
> > > > > > > Credit Report: $50
> > > > > > > Mortgage Broker Fee: $88
> > > > > > > Flood Cert: $17
> > > > > > > Closing or Escrow Fee: $350
> > > > > > > Title Search and Court Searches: $700
> > > > > > > Recording Fees: $195
> > > > > > > Commitment Fee (I assume this is the app. fee): $280
> > > > > > >
> > > > > > > for a total of $1,880
> > > > > > >
> > > > > > > plus...
> > > > > > >
> > > > > > > 15 days of interest: $479.25
> > > > > > > 14 months of homeowners ~ $550
> > > > > > > and 5 months of prop. tax: $1705.00
> > > > > > >
> > > > > > > for a grand total of $2734
> > > > > > >
> > > > > > > total closing costs:  1880 + 2734 = $4614.00
> > > > > > >
> > > > > > > One more thing, some of these items have the acronym PFC next
to
> > > them,
> > > > > > does
> > > > > > > that mean anything?
> > > > > > >
> > > > > > > Thanks a bunch Jeff!
> > > > > > >
> > > > > > >
> > > > > > > "Jeff Strickland"  wrote in message
> > > > > > > news:vqvjtmmj1nkn1a@corp.supernews.com...
> > > > > > > > The APR is the non-recurring loan costs expressed as an
> interest
> > > > rate.
> > > > > > > These
> > > > > > > > costs include, but are not limited to, title insurance, loan
> > > > > processing,
> > > > > > > > escrow, recording fees, that sort of thing.
> > > > > > > >
> > > > > > > > Basically, if you had fees of 2500.00 against a loan of
> 200,000,
> > > > then
> > > > > > you
> > > > > > > > get loan payments based upon the 200k figure at the interest
> > rate
> > > > > (note
> > > > > > > > rate), but you really only get the real use of 197500 at
> > payments
> > > > > > already
> > > > > > > > determined, so the APR will be higher. Using my numbers as
an
> > > > example,
> > > > > > > 200k
> > > > > > > > @ 6.000% will give you a payment of 1199.10. If you subtract
> the
> > > > money
> > > > > > > (loan
> > > > > > > > fees) that you take from your pocket for closing costs from
> the
> > > loan
> > > > > > > amount,
> > > > > > > > but keep your payments the same, then the interest rate goes
> to
> > > > > 6.118%,
> > > > > > > > which is the APR.
> > > > > > > >
> > > > > > > > Comparing my example to your situation, one of two things
must
> > be
> > > > > taking
> > > > > > > > place, 1.) the non-recurring closing costs that go into the
> APR
> > > must
> > > > > be
> > > > > > > > higher than $2500, or 2.) your loan amount is smaller.
> > > > > > > >
> > > > > > > > If I use a 200,000 loan amount and the 6.282% APR, then I
> > > calculate
> > > > > your
> > > > > > > > loan costs for non-recurring closing costs to be about
> $5907.87.
> > > If
> > > > I
> > > > > > > > subtract my normal estimated colsing costs of $2500, then
your
> > > loan
> > > > > > > officer
> > > > > > > > is making about $3400 from your loan package. Given a
$200,000
> > > loan
> > > > > > > amount,
> > > > > > > > this is about one and one-half points. This is a normal and
> > > > customary
> > > > > > > > commission to pay a loan officer. You are paying "points",
> even
> > > > though
> > > > > > you
> > > > > > > > said that you are not. Be that as it is, the points you are
> > paying
> > > > are
> > > > > > not
> > > > > > > > excessive or predatory, and you shouldn't be concerned. The
> > lender
> > > > has
> > > > > > > > simply charged for his services without calling those
services
> a
> > > > > > discount
> > > > > > > > fee or loan origination fee.
> > > > > > > >
> > > > > > > > If you wanted to tell us the actual loan amount for your
> > scenario,
> > > I
> > > > > > will
> > > > > > > be
> > > > > > > > happy to calculate the non-recurring closing costs based
upon
> > the
> > > > APR
> > > > > > you
> > > > > > > > gave us. You can then compare my calculation against the
> > > disclosure
> > > > > > forms
> > > > > > > > you have.
> > > > > > > >
> > > > > > > > You might be doing something here that you do not understand
> > > fully,
> > > > > but
> > > > > > I
> > > > > > > > don't see any reason for alarm at this point.
> > > > > > > >
> > > > > > > > Everything you have told us so far sounds perfectly normal
and
> I
> > > see
> > > > > no
> > > > > > > > cause for alarm. It would be nice if, in the interest of
full
> > > > > > disclosure,
> > > > > > > > the loan officer would have told you this up front. But, my
> > guess
> > > is
> > > > > > that
> > > > > > > > you insisted on a no points loan, and you probably shopped
to
> > more
> > > > > than
> > > > > > > one
> > > > > > > > lender until you found one that said, "Sure, I can do a no
> > points
> > > > > loan,
> > > > > > > and
> > > > > > > > I can give you the lowest possible rate." The facts are that
> > loan
> > > > > > officers
> > > > > > > > get paid in one of three ways, the borrower pays in the form
> of
> > > > > points,
> > > > > > > the
> > > > > > > > lender pays points back to the loan officer in what the
> industry
> > > > calls
> > > > > > > > "rebate", or the loan officer takes a combination of points
> from
> > > you
> > > > > and
> > > > > > > > rebate from the lender.
> > > > > > > >
> > > > > > > > A SHORT LESSON
> > > > > > > > If you are staying in the property for longer than 5 years,
IT
> > IS
> > > > > ALWAYS
> > > > > > > > BEST TO PAY POINTS AND GET THE LOWER RATE. Let me illustrate
> > this
> > > > with
> > > > > > my
> > > > > > > > 200k loan amount. The 6.000% rate you said you got will
allow
> > the
> > > > > lender
> > > > > > > > (today -- rates fluctuate everyday and what we can do today
is
> > not
> > > > the
> > > > > > > same
> > > > > > > > as what we could have done yesterday, nor is it the same as
> what
> > > we
> > > > > can
> > > > > > do
> > > > > > >
> > > > > > > > tomorrow) pay the loan officer a small rebate. But, if you
> paid
> > a
> > > > > point
> > > > > > > > ($2000) on your loan, you could get a note rate of 5.750%
and
> a
> > > > > payment
> > > > > > of
> > > > > > > > $1167.14. Remember, the payment at 6.000% was $1199.10. So,
> > paying
> > > > > $2000
> > > > > > > in
> > > > > > > > discount fees or loan origination fees would save you $31.96
> per
> > > > > month.
> > > > > > If
> > > > > > > > we divide the points ($2000) by the monthly savings, we get
> the
> > > time
> > > > > in
> > > > > > > > months it takes for the lower payment to pay the costs
> > associated
> > > > with
> > > > > > > > getting that lower payment. In my example, the time is
62.578
> > > > months,
> > > > > or
> > > > > > > > just about 5 years. If you are staying in the property
LONGER
> > than
> > > 5
> > > > > > > years,
> > > > > > > > it is always best to pay points and get a lower rate. See?
> > > > > > > >
> > > > > > > > If you haven't got the funds to pay the points, then it
> doesn't
> > > > really
> > > > > > > > matter. But, if you have the ready cash, then perhaps buying
> > down
> > > > your
> > > > > > > rate
> > > > > > > > is a worth while thing to do. Your tax man will know for
sure.
> > Let
> > > > me
> > > > > > > > suggest a caveat, if the money you use to pay down the rate
> can
> > > earn
> > > > > > more
> > > > > > > > than $32.00 per month, then perhaps if doesn't make any
sense
> at
> > > > all.
> > > > > > For
> > > > > > > > example, it might make more sense to pay off high interest
> rate
> > > > bills,
> > > > > > but
> > > > > > > > normally we are using loan proceeds (if the loan is a
> refinance)
> > > to
> > > > > pay
> > > > > > > > those bills off, so then it makes sense again to throw some
> > extra
> > > > > money
> > > > > > at
> > > > > > > > the points and take the lower rate.
> > > > > > > >
> > > > > > > >
> > > > > > > >
> > > > > > > >
> > > > > > > > DISCLAIMER
> > > > > > > > I said the loan officer is making about 3400 from you, the
> truth
> > > is
> > > > > the
> > > > > > > > house (office where he works) is making this, the loan
officer
> > > will
> > > > > > split
> > > > > > > > this commission with the house on some sort of predetermined
> > > > ratio --
> > > > > > this
> > > > > > > > is minutia that you don't need to concern yourself with. My
> > point
> > > is
> > > > > > that
> > > > > > > > the loan officer is not personally making 3400 from you, he
is
> > > going
> > > > > to
> > > > > > > get
> > > > > > > > considerably less than that.
> > > > > > > >
> > > > > > > >
> > > > > > > >
> > > > > > > >
> > > > > > > >
> > > > > > > >
> > > > > > > > "AJ M."  wrote in message
> > > > > > > > news:ld2dnRH0I8gBdzOiRVn-gQ@comcast.com...
> > > > > > > > > I have been approved for a mortgage with a fixed rate of
> 6.00
> > %.
> > > > On
> > > > > > the
> > > > > > > > > Truth-In-Lending Disclosure Statement, it says my APR is
> going
> > > to
> > > > be
> > > > > > > 6.282
> > > > > > > > > %.  I have no discount or origination points.  What else
> could
> > > > > explain
> > > > > > > the
> > > > > > > > > 6.00% versus 6.282?  Thanks!
> > > > > > > > >
> > > > > > > > >
> > > > > > > > > AJ
> > > > > > > > >
> > > > > > > > >
> > > > > > > >
> > > > > > >
> > > > > > >
> > > > > >
> > > > > >
> > > > >
> > > >
> > > >
> > >
> >
> >
>