Is comparing APRs the best way to decide which lender has the lowest rates and fees?

The Federal Truth in Lending law requires all financial institutions disclose the APR when they advertise a rate. The APR is designed to present the actual cost of obtaining financing, by requiring some, but not all, closing fees be included in the APR calculation. These fees, in addition to the interest rate, determine the estimated cost of financing over the full term of the loan. Since most people do not keep the mortgage for the entire loan term, it may be misleading to spread the effect of some of these up front costs over the entire loan term.

The APR does not include all the closing fees. Fees for things like appraisals, title work, and document recording are not included even though you will probably have to pay them.

For adjustable rate mortgages, the APR can be even more confusing. Because no one can predict future market conditions, assumptions must be made regarding future rates.

You can use the APR as a guideline to shop for loans but you should not depend solely on the APR in choosing the loan program which is best for you. Look at total fees, possible rate adjustments in the future if you are comparing adjustable rate mortgages, and consider the length of time which you plan on having the mortgage.

Keep in mind, the APR is an effective interest rate--not the actual interest rate. Your monthly payments will be based on the actual interest rate, the amount you borrow, and the term of your loan.