QUESTION:
I recently obtained a mortgage loan for $200,000 from my bank at a quoted interest rate of 6.5% fixed. When I got my Truth In Lending Statement (TIL) it indicated that my Annual Percentage Rate (APR) was 6.875%. Why do I have two different interest rates? Can you explain this to me?
BOB’S ANSWER:
Generally, you have costs associated with obtaining your loan in addition to the interest rate. These “ costs” may include an origination fee, a discount fee, prepaid interest etc. The purpose of the APR in the Truth In Lending Statement is to blend together in an annual percentage rate the entire cost of getting the loan. For your closing, the impact of the fees charged to you equates to about 0.375% per year which when added to the 6.5% brings you to the total annual percentage cost of credit (derived from fees and interest) to the 6.875%. In essence, if you had no fees of any kind and had an interest rate of 6.875% per year, you should pay the same amount over the life of the loan as you have done by completing your closing at 6.5% interest per year.
(You can email your questions to Attorney Bob Boudreau at reliabletitleinc@gmail.com or leave it in the comment section below. Your question and his answer may be published in this website at a later time).
