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Closing Costs: How They Affect Your APR The Federal Truth in Lending law requires banks, brokers, and mortgage companies to disclose the APR, Annual Percentage Rate, to borrowers when obtaining a loan. APR is an interest rate calculation that includes closing costs as part of the calculation. It is the total of the amount borrowed, plus the fees associated with obtaining the loan (Closing Costs). So why is this important when shopping for a loan? The APR is one tool to help you compare apples to apples when shopping for credit. There are two parts to calculating the APR: the Note Rate (Interest Rate) and the Closing Costs. The Note Rate is the actual interest charged on the loan for the length of the loan (for example, 15 years). The Closing Costs are one-time fees and charges incurred in obtaining the money. This is where lenders make a profit. The closing costs may include fees for origination, appraisal, home inspection, underwriting, title endorsement, recording, application, etc. A Good Faith Estimate and a Truth in Lending Disclosure give you the “estimated” closing costs the lender charges for the mortgage. It’s up to you to compare them carefully and determine the best offer, remembering that it may differ at the time of closing. To learn more about APRs, see the examples in the callout below or contact the Lending Team at Payne County Bank. Call 547-2436 or email us at WeLoveHomeowners@paynecountybank.com.
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