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Author: Dwdonhoff Big gold star, 5000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 127553  
Subject: Re: 80-10-10 vs 95-5: Any APR difference? Date: 3/17/2001 11:17 PM
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Hi Mpelosi3,

I have loan shoppers trying to accurately cut through the BS all the time, and unfortunately the industry really doesn't make it easy for them to do so.

To *DIRECTLY* answer the question you asked...
YES, all else being equal, the APR on a 95% LTV loan will be higher, generally, than the APR on an 80% LTV loan... but this is only because your closing costs will be slightly higher because title, escrow, and origination are usually figured as a percentage of the loan amount.

I suspect you really want a better way to get an "Apples-To-Apples" comparison tool, right? That's supposed to be what the APR is for... and done accurately, it does. Unfortunately, to do it accurately you'll have to do it yourself, or have a broker you can trust to do it.

In order to calculate this accurately, here's how;

(Do this seperately for each loan you want to compare)

1) Find out your total monthly payments (of all loans in a single combination... 1st mortgages and seconds) (add the appropriate number of months of PMI, if applicable,)
2) Multiply it by the number of months for the loan (360 for a 30 year, 180 for 15... you get the idea,)(if there's PMI, add only until you would have paid down the principal so there is no more PMI (if you're unsure of when this would be, as your broker to calculate it and tell you)),
3) Add all the closing costs and fees (but not the taxes or homeowner's insurance),
4) Divide the answer from Question #3 by the number of years (not months)... 30, 15, 10, whatever,
5) Divide the answer from question #2 by the number of years (not months),
6) Subtract the answer to #5 from the answer to #4,
7) Divide the answer to #6 by your total amount borrowed among all the loans in this combination...

THIS is your complete, accurate APR. Don't be decieved if it's different from the disclosures you've received from lenders, borkers and bankers... there are no standards for what should be considered accurate APR calculation, so many people leave out as much as possible so theirs will look more attractive. Others don't know how to calculate it, so they print whatever their software tells them (which is rarely accurate because most mortgage software allows varied input for calculations... and most people in finance are not (I'm sorry to say) very software savvy.)

All the best,
Dave Donhoff
Home Finance USA
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