One new real word today, I’m Michael Acquisto, real estate broker, Acquisto Real Estate in today’s word is APR stands for annual percentage rate in this is not the note rate on your loan. That’s a key thing. It is the value created according to the government formula intended to reflect the true annual cost of borrowing expressed as a percentage. It works sort of like this, but not exactly so. Only when you use the actual loan payment is the guideline you deduct closing costs from the loan amount.
Then use the actual loan payment. Then you calculate what the interest rate would be on the amount instead of the actual loan amount. You will end up with a number close to the APR because you’re using the same payment on the smaller amount. The approach is always higher than the actual note rate on your loan. What? OK, so what does that really mean and use it in a sentence, Mike? Sure. The brand new client that’s buying their first home calls up the lender and gets a document and says, why is my appraiser higher than the note rate that I was promised that we discussed?
That’s the question, and that’s how I use the sentence and the actual answer for you is it takes all the cost of borrowing and it puts it in there and it gives you a number. And this number is kind of like if that’s amortize all those expenses over this term and it’s going to give you a higher number, it’s your effective annual percentage rate. Right. And then what this does is this number is higher than your actual note rate.
So APR is always going to be higher than your note rate. Whenever that comes up, you’re probably going to want to speak to your lender for an exact clean definition on why, how and whatever is going on. It’s going to leave your head a little spinning.
But just know that that is the case. It’s a government thing and how they want it presented to you so that you can effectively compare product one and product two or product three with different mortgages and understand the true cost of borrowing and which one’s more expensive. It’s going to take into account your expenses related to originating that particular loan. That is aper that’s fully defined. Close that out.