GOOD CALCULATORS

http://www.amerisave.com/rateResults.cfm?WebSearchID=9258661 Compare Current Rates http://www.quicken.com/banking_and_credit/loan_calc/ Life of the loan calculator
http://www.principlemortgage.com/MortgageCompare.html 15 vs. 30 year Loan

Mortgage Calculators Pay Option Arm Calculator
http://www.payoptionarmcalc.com/should_i_refinance_into_a_pay_option_arm.php

What a Rate Sheet Looks Like-Broker Commissions Based on
http://www.novellemtg.com/files/PayOptionArm.pdf

APR - Annual Percentage Rate

The annual percentage rate, or APR, is a measure used to determine the true cost of a loan. Instead of a bank or lender telling that your rate is 6.5% with fees of $8,000, they’ll just say the annual percentage rate is 6.87% with those fees included. The annual percentage rate was essentially created to prevent lenders from not disclosing fees that went into a loan to make the rate appear better than the competition. In other words, APR includes most of the other fees lenders charge during the loan transaction. These fees are then rolled into the interest rate to come up with the APR. However, it’s still not sufficient enough to choose a mortgage based on APR alone, because lenders do not include all the fees associated with your loan transaction.

APR also assumes a loan will be paid off after the full term of the loan, whether it be 15 or 30 years. Most homeowners hold on to their mortgage for a significantly shorter period of time, which will completely throw off the actual APR. Additionally, APR is not an effective measure between different products, only like products because APR’s time dependency. You will only see ALL the fees involved in the mortgage transaction by requesting the GFE, or Good Faith Estimate.

The following fees are usually included in APR:
Discount points/broker fee - Origination points - Processing fee - Underwriting fee - Document drawing fee - Appraisal review fee

The following fees are usually not included in APR: 
Title fees - Escrow fees - Notary fees - Recording fees - Credit report - Appraisal report fee - Home-inspection fees - Doc prep fees - Attorney fee

You may also see APY, or annual percentage yield, which banks use to figure out the cost or benefit of compounding interest. APY - Annual Percentage Yield The annual percentage yield, or APY, is the annual interest rate, taking into account the frequency and cost of compounding interest.

Because APY factors compounding interest into the interest rate, it measures the true percentage of interest a borrower will pay in a one-year period, as opposed to just looking at the interest rate and nothing else. With APY, compounding interest is king. Instead of simply looking at rates, you look at the terms and the rate.

Essentially the amount of times your interest compounds in a year and the corresponding interest rate. To put it simply, the more times your interest compounds in a year while carrying a balance, the higher your APY, or actual interest rate. The bank might compound your interest semi-annually, quarterly, monthly, or daily. Because banks and lenders know consumers are always looking for the lowest rate, they will often quote potential homeowners with the APR, not the APY, because the number is always lower. However, when banks and lenders are offering savings accounts, they will advertise the higher of the two numbers, the APY. Keep in mind that a savings account that compounds daily will yield a higher APY than an account that only compounds monthly or less. This should give you a good idea as to what their intentions are, also what number you’ll want to look for when seeking a mortgage or savings account for that matter.

Finance Charges are to be included in the APR

1605(a) “Finance charge” defined Except as otherwise provided in this section, the amount of the finance charge in connection with any consumer credit transaction shall be determined as the sum of all charges, payable directly or indirectly by the person to whom the credit is extended, and imposed directly or indirectly by the creditor as an incident to the extension of credit.

The finance charge does not include charges of a type payable in a comparable cash transaction. ( If the recordation tax for example was overcharged then the overcharge would be included in the APR as it was not an amount paid to a governement agency)

The finance charge shall not include fees and amounts imposed by third party closing agents (including settlement agents, attorneys, and escrow and title companies) if the creditor does not require the imposition of the charges or the services provided and does not retain the charges.
(If the creditor is involved in any fee splitting via Captive Reinsurance or Title Abstract. etc then the fee should be included in the APR)

Examples of charges which are included in the finance charge include any of the following types of charges which are applicable:
(1) Interest, time price differential, and any amount payable under a point, discount, or other system or additional charges.
(2) Service or carrying charge.
(3) Loan fee, finder’s fee, or similar charge. (This is exactly what a YSP is and you pay a higher interest rate because of it. Figure the cost of that on the life of the loan.)
(4) Fee for an investigation or credit report.
(5) Premium or other charge for any guarantee or insurance protecting the creditor against the obligor’s default or other credit loss.
(6) Borrower-paid mortgage broker fees, including fees paid directly to the broker or the lender (for delivery to the broker) whether such fees are paid in cash or financed.
(My arguement is the borrower pays broker fees, even if they are in the form of a YSP, in the nature of a higher interest rate, prepayment penalties, higher margins, and other factors distributed on daily rate sheets. Broker gets a higher YSP on mortgage notes with adjustable rates and/or floating with indexes which most likely increase over the life of the loan. Some other factors YSP depend on is whether the loan is a first purchase mortgage money or refinance. Another, is whether it is a first position lien or a subordinate lien. So combining and refinancing is more beneficial to the broker but may have no benefit to the borrower. As is the case in many of these broker incentives. So my argument is these are financed broker fees over the life of the loan using the technique of hiding them in an item Paid out of closing (POC) YSP. Thereby avoiding adding them to the APR. In fact, they do cost the borrower MUCH more then the original YSP over the life of the loan. A prepayment penalty would be extra on top of this when charged if loan is paid off in three years. Also, if the indexes are clearly increasing and the max interest rate plus the index is over the HOEPA threshould then it should be considered a HOEPA loan. So if you take into account all of the hidden and deceptive cost of the loan -It would be a HOEPA loan.)
 
If you interpret (3) and (6) I don’t think it would be unreasonable to consider a YSP a finance charge and require it to be recorded as such in the APR. Along with prepayment penalties and other costs of harsh mortgage terms. If you could see the rate sheet provided to the broker for that day, from that lender and determine what compensation he got for giving you the specific terms you got, then any terms which were to your detriment that you did not have to get on your loan should be included in the amount this loan cost you.

For example on my loan:
The difference in the rate and terms on my refinance was was going to cost me over 1,000,000 dollars over the life of the loan. These terms were the type of loan adjustable option arm, margin, the prepayment penalty, combining and refinancing for first position, etc. The terms were set because for each one of them he received a commision based on it. Called the YSP offered to the broker. Not because they were in my best interest. The prepayment penalty if I sold my house would have cost me $11,730. The overcharge for recordation tax $966 was not in my APR because it was a fee paid whether it was a cash or a credit transaction. But it was a cost that should have been in the APR because it was not paid- it was retained by the title company which splits fees with the lender via Captive Reinsurance and other kickback mechanisms. So at the end of the day what did that YSP which the broker earned really cost me?

THIS IS A LENDERS EXPLANATION OF APR ON THEIR WEB SITE:
They know exactly how they can mislead you  - in my opinion. What do you think after reading this? My comments are highlighted in yellow.

Understanding APR

There is a lot of talk in the industry about annual percentage rate (APR). In fact, APR is a required disclosure on many advertisements. While most people have a vague understanding of APR, few fully understand the concept; yet many make decisions based on it. This is one of those subjects where a little information can be counterproductive. Many people make decisions–bad decisions–using a tool they don’t really understand. This isn’t a course in mathematics, and it won’t make you an expert in APR, but it will give you the working understanding to make an informed decision. ( Well, I call that admitting the fact that they can lead you astray based on our lack of, or as they put it "vague understanding.")

You’ll know when to use APR and you’ll understand when APR can lead you astray. The basic concept of APR was to create a basis for comparing loans. Since different lenders quote an endless variety of rate, point and fee options, the government felt too many consumers were unable to determine the overall best value.( APR was the governments attempt to make it easier for us to compare loans, then lenders devised schemes around how to avoid making their APR look higher.)Admittedly, it’s not easy to make comparisons, but APR can be useful if used cautiously. The APR calculation effectively takes the discount points and SOME of the fees associated with acquiring a loan and converts those expenses into a corresponding rate adjustment. The actual rate of the loan is then adjusted upward to reflect the rate of a theoretical loan with the same payments, but without the associated discount points and fees.
(If there were no fees or points, the APR and the actual note rate [interest rate] would be the same.)

Here’s another way to look at it. Suppose you want to borrow $100,000. You choose a 30-year fixed rate loan at 7.5%, and pay one discount point ($1,000), a 1% origination fee ($1,000), and $350 in other fees. Although the lender is giving you a loan for $100,000, you have paid $2,350 to the lender. Your payments are based on a loan of $100,000, but your net proceeds are only $97,650. Hence your APR is 7.75%. In other words, if you selected a rate of 7.75% and did NOT pay the discount point, the origination fee, or the $350 in other fees, the APR says you would have the same overall value as the 7.5% loan with the $2,350 in expenses. There are substantial limitations to the APR. In the previous example it was noted that the two loans (7.5% with $2,350 in expenses and the 7.75% with no expenses) were the same value with respect to the APR. However, the APR assumes both loans go to the full term. If the loan is paid off in five to seven years (the average life of a mortgage), the two loans are NOT the same value. The higher-rate loan is the better value. Suppose the borrower with the 7.5% loan sells the house in five years. That borrower has made 60 payments of $694.87 plus the initial expenses ($2,350) for a total of $44,042.20. The borrower with the 7.75% loan has made sixty payments of $711.82 with no initial expenses for a total of $42,709.20. The higher-rate loan costs $1,333 LESS than the lower rate loan. ( Have you ever had a loan officer really take the time to try and understand or explain all of this to you using your unique information and loan terms? I've had several real estate loans and can honestly say not once did any loan officer, mortgage broker or lender give me any comparisons. They just wrote up a loan and said here it is. )

Clearly, in this case using APR to make a decision would be unwise. There are similar cases when a loan with the lower APR may actually cost the borrower more when all factors are considered. You should also be aware that not all lenders follow the rules of calculating APR under the Truth in Lending Act. ( WOW A lender saying that not all lenders calculate the APR under the TILA? I don't think this lender or the brokers they have in 50 states all calculate the APR under TILA. In addition this is a lender who uses the YSP heavily. A point I've argued vigorously should be included in the APR. THey also regularly use a prepayment penalty. So how many people were charged that and it wasn't included in the APR. Sorry for the rant but this statement makes me really angry.)For example, the application fee may or may not be included in the APR calculation, depending on how the lender conducts business. Yet the actual fees that are included in the APR do not have to be separately disclosed.

One lender may offer an incredibly low rate and show a very low APR because the loan has been packaged to avoid including substantial fees in the APR calculation. (YSP?) Ask to see a breakdown of fees charged. Still another shortcoming of the APR is its understandable failure to recognize the “opportunity cost” of the discount points used to buy down the rate. For a savvy investor getting high rates of return, it’s typically not warranted to reduce investments for a slightly lower rate on a mortgage. ( What? Now they are going to convince you why should take a higher APR. Even a slight increase in APR could cost you plenty over the life of the loan. I recently did some calculations for  friend. So they are saying that paying a few thousand dollars to buy down a rate isn't worth saving $100,000 over the life of a loan. My friend is 56 years old and plans to stay in his house forever. Retire there. So is it in his best interest to pay a few thousand now or commit to paying $100,000 more over the life of his loan? You need to understand why they want you to pay the highest APR possible. Wall street is buying the total sum of all the payments you will have paid over the full term of the loan. That is what your loan is worth to them. Your loan is worth more to them if it is adjustable not locked in to today's low interest rates. The lender is planning to immediately sell your loan. Or, they may use it in a interest rate swap or hedge transaction. So as interest rates rise if your interest rate is the fixed they don't benefit. So a $510,000 loan with a fixed rate APR of 6% is worth less to them then a $500,000 loan with an adjustable APR starting at 5.75%. GET IT! Again, sorry for the rant. If you don't understand you need to spend some time playing with the calculators. It took me a long time to grasp it also. Three months opf research in fact. It not the amount of the loan at face value, it is the amount you will pay over the life of the loan that they want to maximize.)

For adjustable rate mortgages (ARMs), the APR is based on the “accrual rate” of the loan, which assumes the loan rate will make adjustments based on the current index and margin for the loan and other adjustment restrictions. Of course, economic conditions are likely to change, so the actual APR will probably be different. ( So what they are saying here is your APR doesn't mean squat as they can not predict the affect of increases and what they might be. My loan went from an APR of 7.438% to 8.55% in the first year. However the representative broker I used, a broker who is a registered broker in this companies division of brokers uses default calculators on their web site TODAY that don't reflect the current index. They reflect a much lower index and don't tell you where to get the current index or that you should look them up. They also use a five year example and use indexes going down over the five years, when in fact they are going up.)Many software programs used by lending institutions rely on the person generating the quote to enter the current ARM index and margin. Be careful that your ARM quote doesn’t use an inaccurately low index.( 1% teaser rates? Does the teaser rate affect the APR. I tried to do a calculation on my loan using the indexes they were supposed to use and hard as I tried I could not come up with the original APR they quoted. Did they use the current ARM index and margin? Did they package the loan to make the APR look lower? I'll never know or maybe in the course of my lawsuit they will be forced to to justify what numbers they did use and how they were calculated. One thing is for sure if I take the APR they gave me and try to do a sum of all payments it is way off.)  

In fact, you should ask the lender what index and margin was used for the quote. ( Remember we don't even understand APR more less indexes and margins. I certainly didn't. So if I had asked I still wouldn't have understood it. Also this is a sentence they bury in the stack of documents they give you. It's not a bold disclaimer - MAKE SURE YOU ASK ABOUT THIS- MAKE SURE YOU UNDERSTAND THIS -As it should be.) Borrowers can use APR for a quick analysis of a loan proposal. For example, if a lender quotes a rate well below the market rate, but the APR is substantially higher, the borrower can assume the loan requires payment of high fees. (YSP is not accounted for in the APR) As mentioned previously, however, some fees may not be included in the APR, so this “quick check” isn’t foolproof.

Borrowers can avoid the pitfalls of APR by following a few simple steps: Determine the estimated time period you expect to have the loan (e.g., five years) Determine all the costs associated with the loan acquisition (exclude any prepaid taxes and insurance). ( Add in prepayment penalty) Determine the total interest and mortgage insurance that will be paid for the time you think you will own your home. If you have difficulty with that calculation, just use the total principal and interest (P&I) payments plus the mortgage insurance and your comparison will be reasonably accurate. Add Nos. 2 and 3 and select the lowest amount. Remember, nothing is foolproof, but one of the best avenues to avoid pitfalls such as inaccurate APR interpretations is the selection of a highly competent Loan Officer.( How many times are they going to use the words it isn't foolproof? Know any loan officer who can resist the lure of a exhorbitant YSP in exchange for giving you the best deal? In addition, if you are like me there is a good chance you didn't recieve your good faith estimate and loan terms within the three days as required by RESPA. Meaning you didn't have a lot of time to compare terms, shop around etc. This is a trick. When applying for a mortgage you have only a two week window to apply to multiple companies and only have it recorded as one credit score pull. So especially if your credit score is not really high this could affect you score enough to send you into another category. My credit score was close to going into another number which may have prevented me from getting a refinance. So the broker knew if he delayed long enough I would be forced to go through with his loan. Another TRICK my broker used was pushing for an appraisal right away. This forces you to shell out money, mine was $400 and some are as high as $600, so now you have money invested and haven't even seen the loan terms. Then when I did get the good faith estimate almost a month later, it was worthless because two weeks later all the terms were changed at closing. Appraisal on Feb 22nd, GFE provided on March 13th and closing on April 3rd. So what's the point? The "Good Faith Estimate" has really become a joke in the industry. Just another tool to enable them to "bait and switch" you. Not one important material term or fee was the same from my GFE to my closing documents.)