Using APR to Shop for a Mortgage: The 5 Commandments

By now, you probably realize that APR calculations and disclosures aren’t entirely straightforward, and they aren’t necessarily reliable. Here are the 5 Commandments for using APR to shop for a mortgage:

  1. Get all of your mortgage disclosures on the same day, and get them within a few hours if possible. Mortgage rates can change so quickly that two loans can’t be compared if the disclosures were issued days apart.
  2. Remember that the government hasn’t stated exactly which charges must be included in APR, so small differences between lenders might just be differences in calculations and not the loans’ costs. In addition, the APR only has to be accurate to .125%.
  3. Use an online APR calculator to double check the lenders’ figures, and use the same online calculator for all of your mortgage quotes.
  4. Compare only loans with similar terms – 15-year fixed to 15-year fixed, 5/1 ARM to 5/1 ARM, etc.
  5. When APRs between two loans are similar, choose the loan with the lowest upfront cost.

Following these rules is probably the simplest way to deal with a complicated issue.

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